Annual Report Enel Chile 2017 Santiago Stock Exchange ENELCHILE
Nueva York Stock Exchange ENIC
Enel Chile S.A. was initially incorporated as Enersis Chile S.A., on March 1, 2016. On October 18, of the same year, the company changed its name to Enel Chile S.A. As of December 31, 2017 the company´s total subscribed and paid capital amounted to Ch$ 4,120,836,253 represented by 49,092,772,762 shares. These shares are traded on the Santiago Stock Exchange and, as American Depository Receipts (ADR) on the New York Stock Exchange.
The company’s business is to exploit, develop, operate, generate, distribute, transform and/or sell energy, in any form and nature, directly or through other companies.
Total assets as of December 31, 2017, amounted to ThCh $5,694,773,008 . Enel Chile controls and manages a group of companies that operate in the Chilean electricity market. In 2017, net income attributable to the controlling shareholder reached ThCh$ 349,382,642 and operating income was ThCh $578,630,574 . At year end 2017, a total 1,948 people were directly employed by its subsidiaries in Chile. Annual Report Enel Chile 2017 2 Annual Report Enel Chile 2017 Contents
>> Letter from the Chairman...... 4 >> Open Power...... 8 >> Highlights 2017...... 10 >> Main financial and operating data...... 14 >> Identification of the Company and documents of incorporation...... 18 >> Ownership and control...... 22 >> Management...... 28 >> Human Resources...... 44 >> Stock Market Transactions...... 54 >> Dividends...... 60 >> Investment and financing policy ...... 66 >> History of the Company ...... 70 >> Investments and financial activities...... 74 >> Risk factors...... 80 >> Reorganization - Elqui Project...... 96 >> Industry regulation and electricity system operations...... 102 >> Electricity generation...... 112 >> Electricity distribution...... 126 >> Environment and sustainability ...... 132 >> Ownership share table...... 140 >> Company’s significant events...... 144 >> Identification of subsidiaries and associate companies...... 160 >> Statement of Responsibility...... 168
Content 3 Letter from the Chairman
Dear shareholders, It is my pleasure to present the Annual Report and Financial Statements of Enel Chile for 2017. In the following chapters you will find a description of our operations in the electricity generation and distribution markets through our subsidiaries Enel Generación Chile and Enel Distribución Chile.
First, I would like to thank the directors, officers, and every- one who works in our company, for the job they have done this year, for the trust they have placed on this administra- tion and, above all, for supporting the new direction we are taking as a Company.
During 2017, in addition to achieving good economic re- sults, we have carried out one of the most important re- organizations that the Chilean market has seen in recent times. The Elqui plan was conceived as the means to face the changes in the electricity industry. It became essential to incorporate the non-conventional renewable energy as- sets in Chile owned by Enel Green Power Latinoamérica into Enel Chile and it was accomplished through a merger. The Enel Generación Chile PTO was also carried out suc- cessfully and offered minority shareholders of Enel Gener- ación Chile the opportunity to become a part of Enel Chile.
The Elqui plan represents the beginning of a clear and sustainable path that will allow us to successfully face well-deserved growth in a very different energy market. It is with pride that we can say that today we are the most diversified company in this sector in Chile. In Generación we rely on a total installed capacity of 7.5 GW, of which 4.7 GW are renewable energies and 2.8 GW are thermal.
4 Annual Report Enel Chile 2017 In Distribución we serve 1.9 million customers, 40% of the As you know, Enel Generación Chile’s Board of Directors put domestic market. an end to their 51% interest in the HidroAysén project, return- ing the water rights to the State. Colbún, our partner holding The Company obtained important achievements during the remaining 49%, followed. We believe that this project 2017. Enel Generación Chile was the winner of the electric- wasn’t economically or environmentally feasible, hence it was ity tender that took place in October of last year, for being impossible to continue. The electricity expected to be gen- awarded over 50% of the auctioned energy. This success erated by HidroAysén power plants has been replaced with responded to the mix of conventional and renewable en- energy from non-conventional renewable power plants. ergies, achieved thanks to an agreement with Enel Green Power Latinoamérica. One of the basic principles that inspires all our projects is that they be approved and accepted by the community. The Another important step was taken in the Bocamina pow- decision to end the Neltume and Choshuenco projects, in er plant, in the Biobío Region, where the roof of one of the Los Ríos Region, and return the respective water rights the two coal fields in the power plant was completed, and to the State, was based on this same principal. work on the second roof began. The purpose of this proj- ect is to improve the way we handle coal and provide a Ethics and transparency are among the Company´s values more effective palliative to improve the environment. This and commitment with all its stakeholders, seeking to in- is the first thermal power plant to implement this sort of spire trust and maintain long-term sustainable and inclu- standard. sive relationships.
In terms of the generation projects, the construction of In terms of sustainability, we have revitalized our positive the Los Cóndores hydroelectric power plant, in the Maule relationship with communities in the territories where we Region, has kept moving forward. By the end of 2017, are present. This year we have reached important agree- this power plant, which will have an installed capacity of ments with families from Coronel to overcome the impacts 150 MW, was over 60% complete. of the eradication of the families that began in 2010. In terms of environmental sustainability, we began a refor- The availability of natural gas for electricity generation in estation project in the Biobío Region, together with Con- 2017 is also worth highlighting. Enel Generación Chile was cepción University, planting over 2 million native species in able to provide a greater amount of natural gas fueled elec- 700 hectares of land. Further north, in the Quintero Region, tricity to the SIC, supplementing the production of San we began a sustainability plan along with the communi- Isidro and Quintero plants in the Valparaiso Region. ty that involved implementing development initiatives de- fined by them.
Letter from the Chairman 5 In the distribution business, new short and medium-term people the continuous supply of electricity in the event of challenges lie ahead. The enactment of the new Technical a prolonged outage. Distribution Norm last year established greater require- ments in electricity supply quality and must be monitored We want to be an active player in the solutions to the im- by district. The necessary investments and operation costs portant problems that cities face, especially in terms of to perform these measurements are included in a new tar- contamination. To contribute to a cleaner environment, iff decree that will hopefully be enacted as soon as possible we are promoting electric mobility. We have promoted so we can close the gap between our clients’ expectations and arranged for the purchase of electric cars for company and current regulatory standards. This will require an enor- personnel, and based on our our concern for clean public mous investment effort that Enel is committed to carry out. transportation, we are actively promoting the addition of electric buses to the Transantiago system. Improving the standards and quality of our customer ser- vice is perhaps one of the broadest challenges addressed Fundamental to electric mobility is charging and re-charging in this Technical Norm. Increasingly specific measurement electric vehicles. We currently have 20 charging stations, and information requirements are defined, including the and with Universidad Católica de Chile, we are studying installation of a smart measurement system for all our cli- the feasibility of installing 350 more charging stations in La ents within a 7-year period. This regulatory framework is Serena, Santiago and Concepción. aligned with Enel Group’s vision regarding the evolution of this industry towards a more digital, efficient and flexible I would like to take advantage of this opportunity to high- operation and therefore very motivating. light the valuable contributions, in all subject matters, of our controlling shareholder, Enel S.p.A.’s, but particularly in We can’t forget the challenges we are currently undertak- those areas that require innovation and technology. With ing in terms of distributed generation, infrastructure to at- the guidance and care of the CEO, Mr. Francesco Starace, tend to the needs of electric mobility, new energy efficient Enel S.p.A is constantly concerned that we adequately technologies, and demand management that will change adapt to face the new challenges in the electricity industry, several of the current business rules and logic. in which they participate and know very well.
As you have been properly informed, in July 2017 we faced I would also like to thank our minority shareholders for the a big climatic event that challenged Enel Distribución S.A. permanent support they give us, and the trust they place and allowed us to review our procedures in great detail in our management team, which we hope to always recip- to take all of the necessary measures to modify them for rocate. a future extreme weather condition event. We also made several commitments with our clients and with the gov- I believe we have entered this new scenario with the nec- ernment. We subscribed, along with other distribution essary anticipation and preparation to be able to success- companies, a protocol that guarantees electro-dependent fully participate in an ever-more competitive market.
6 Annual Report Enel Chile 2017 The renovation of Enel Chile’s companies has no other pur- pose but to make the adequate adjustments to prepare us for this new energy world, and to obtain the economic and social results that shareholders, our employees, and the country expect.
Sincerely,
Herman Chadwick Piñera Chairman
Letter from the Chairman 7 Enel Chile is Open Power O pe n V gr Po IS ea w I Openness to the outside world, to technology and, inter- realities of the Group, we have identified a ‘galaxy’ com- te e O st r N c to nally, between colleagues. This is the strategic concept of posed of a Vision - for the first time in Enel- that represents ha o ll v Open Power. But to completely transmit to customers,our the great long-term goal, a 2025 Mission expressed in five en e g rc e o s m interlocutors, the essence of a new and innovative Enel, it points, of values that represent the Enel DNA and ten be- fa e is important to share this attitude of openness within the haviors that should inspire all the people who work in the c s in o g m company. To create a common culture between all different company. Lets discover the galaxy Open Power together. t e h VALUES e o f w t o h r e ld
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P n o g o g a n t i r e t e n n f t o e r s n e i i e t e z p z y s t e h i s e i n s o t n e g s s g h i s g a n i r a t e c t e a s h a f f ' e o s e o s s s n e n n a u r n n d d b m a c t t m e a e e e r i i s m e w a i h x e f l f m d t y B a t p a d i i o s c o t r v c , a t E o o o i h n o i c c t o o v l d f a a t u i r b H l n i n n r i s v r e t t r y g l s i o g y i a A o t o b f i e i p c n i n n n e e o t s V s d d w o h g i s l i n l e e a v a a I e o g e i a n c n O c d u p g t d l u c d h i s t u e o t a R r d a t e n l p l l a o o c n s t d r a k f s t e i o b a f i e e e v s a f a o s n e r p n c i r d n t e r y t a d e i o i e s O p t t a n v s p y t / i i r v c e o N o o w g g e l O e n w v y r i r s o i v b i a s i O e s d c ( t t n i I e c o t h b t w e o n n p u a d l i e i s u l l i i d l S e e t m n i p e o t c u n h a s y o t p a S f r w g p e i I s e e f m r r o o n r u , e r n o h o m r m e g s r e e i s v e s e u t t M e in o h i p n e n , n e l t t e t n a d h a c e s f s o m l O r t a c e e t t s i n u s c r a o p a i , e t t i n a l n r p h n g t e i o g h k a b e w a g e u t w , i n e o , s n d t p w i i d g e n m b t a e h is f p w e s a e fo a r n n p t e i r b t r s t o e o a f y s h n c il e i p v l c i a x o o m e e e t n n ie y c t O s , d e h o p it n p l e t s o c e w le r O r y r s s c s e n o f a o l c s n a n n l- e e t il d a b c r u l e c i r s i i b e p ty n a u s e , g t e e y io d tc rg n .) ne e en Op Milestones 2017
JANUARY FEBRUARY MARCH Enel Distribución creat- Historic agreement Enel Chile crime pre- Enel Chile acknowledg- Inauguration of Radio ed the first NCRE certi- signed with the families vention model certifi- es 13 Chilean women System connecting the fication process in the from Alto Bio-Bio cation for their outstanding Bio Bio electricity gener- Chilean market, certi- The representatives of Enel Chile and Its subsid- contribution to the de- ation power plants and fying whether electric- Enel Generación Chile iaries, Enel Generación velopment of the coun- Municipalities ity is entirely supplied experienced a histor- Chile and Enel Distribu- try A radio system that al- from NCRE sources ic event along with 25 ción Chile received cer- For the eleventh consec- lows communication This new tool contributes families from the Aukin tification for their crime utive year, and within the between the Ralco and to the minimization of the Wal Mapu Pehuenche prevention model accord- context of the International Pangue power plants that environmental impact of Community, signing an ing to Law 20,393 that Women’s Day, Enel Chile belong to Enel Gener- business operations be- agreement to collaborate establishes criminal re- acknowledged thirteen ación Chile, the Angostura cause it allows assuring with the families in the sponsibility for legal en- outstanding Chilean wom- power plant that belongs nonregulated customers development of projects tities in asset laundering, en for their contribution to to Colbun, and the Qui- that the electricity they for their community. The financing terrorism and the social development of laco and Santa Barbara receive is entirely from agreement represents bribery. Certification was the country. Each one was municipalities was imple- non-conventional re- significant progress in obtained after two years, awarded for her significant mented by ONEMI and newable energy (NCRE) improving the relation- the maximum period de- contribution in her specific the Ministry of Energy to sources. ship between the Com- fined by law. field, such as, art, music improve communication pany and the communi- and lyrics; public service; during potential emer- Enel Chile supports ar- ties in the area because environment, energy effi- gencies and make timely eas affected by the for- it resolves the families´ ciency and sustainability; decisions. This initiative est fires demands related to the education; innovation and supplements an existing Enel Gneración offered Panteón Quepuca or Lot new ventures; public de- contingency communica- food to volunteers, 53, flooded with water bate; community work; tion system project. equipment to remove the for the Ralco Hidroelec- journalism and social com- debris, and water tank tric plant dam. munication; entertainment Fitch Ratings ratifies the trucks with the driver to and sports. AA credit rating of Enel support to communities Sale of the entire Elec- Chile located in the areas af- trogas shareholding Ministry of Energy and Fitch Rating maintained fected by the forest fires Enel Generación Chile Enel Distribución launch Enel Chile’s credit rating. in the city of Concepcion sold its 42.5 % interest energy efficiency pro- It reflects asset diver- and also, along with the in Electrogas for US$180 gram and present first sification and also that authorities of the Maule million to the Chilean “Solar Flower” in South operations in Chile’s take and O´Higgins Regions, company, Aerio Chile, a America. place within a construc- contributed to controlling subsidiary of REN-Redes The Ministry of Energy and tive regulatory frame- the fires in the area. Con- Energaticas Nacionais. Enel Distribución present- work and also stresses tributions were made, ed the campaign “#soy- the Company’s strong through SOFOFA, to pro- multieficiente, I make the financial condition and re- vide homes for the fami- best use of my energy”. spective financial ratios. lies affected by the fires. This initiative seeks to cre- The outlook is positive. ate a conscience among citizens on making good use of energy. The Com- pany showed its com- mitment to this goal by connecting the first “Solar Flower” or “Smart Flower” in South America to supply Enel’s corporate building in Santiago with photovoltaic electricity generation.
10 Annual Report Enel Chile 2017 APRIL M AY JUNE Fitch Ratings rates Enel A year since the first Enel Generación Chile Chile and Argentina Enel Generación Chile Generación Chile AA electric bus free of and Coronel families signed a natural gas and Universidad de The international risk charge for passengers sign a Memorandum of supply for a second Concepcion began the rating agency gave Enel in the downtown area Understanding to over- consecutive year first large scale refor- Generación Chile a lo- of the Santiago began come housing prob- ENAP, Enel Generación estation program in the cal and foreign currency operations lems Chile and Aprovisionado- country “BBB+” rating. The long- It has been a year since The agreement signed ra Global de Energia S.A. The CEO of Enel Gener- term rating given on the the first demo bus, pro- by Enel Generación Chile (AGESA) supplied natural ación Chile, Mr. Walter local scale was “AA(cl)”. moted by the Santiago and the Huertos Famili- gas using the pipelines of Moro, and the Dean of Municipality and Enel ares Residents´ Associ- Electrogas and GasAnd- Universidad de Concep- Distribución Chile to cov- ation from the Coronel es located in the central cion, Mr.Sergio Lavanchy, er the downtown area of area represents a mile- region of the country. The began the reforestation the city free of charge stone of the new road- gas supplied by Enel Gen- of 700 hectares of land for the residents, began map defined to solve the eración Chile was equiva- within the framework of operations. The Minister housing difficulties of the lent to a shipment of 90 the agreement signed of Transportation, Paola residents that were relo- million m3 of gas. This by both entities in 2016. Tapia, announced that cated in 2010. business model allows This agreement involves this type of electric bus the Company to manage planting more than 2 mil- would be included in the Cipreses Hydroelectric its gas supply efficiently lion native tree species, public transportation sys- power plant opens its and also represents an an unparalleled large- tem, Transantiago, during doors to the communi- opportunity to maintain scale project in Chile. the second semester of ty to celebrate Cultural and potentially increase 2017. Heritage Day this type of transaction Recovery of the con- Over 300 people visited with Argentina, offering dors rescued in the Enel Chile and Nissan the facility and learned flexibility to the Compa- foothills in the Maule delivered the largest about the history of the ny´s operations. Region fleet of electric cars In power plant that exists Enel Generación Chile Latin America since 1955, one of Enel offered immediate assis- The Enel Group in Chile Generación Chile´s old- tance and collaboration provided 30 electric cars est facilities. The Gover- to the Chilean Agricul- with 250 kilometers of nor of the Maule region, tural Inspection Service autonomy to Its employ- Pablo Meza, expressed (“SAG” in its Spanish ac- ees. The beneficiaries his appreciation for the ronym) in the city of Talca participated in an open contribution to identity of after finding two Andean contest carried out with- the region. condors in the Maule in the company. The pro- foothills. The Company cess allowed Importing provided the facilities the vehicles directly, with and professional team significant discounts, available in the area for with a guaranteed main- wildlife related contin- tenance and repurchase gencies. price.
Milestones 2017 11 Milestones 2017
AUGUST SEPTEMBER The dome of Bocamina Standard and Poor’s Enel Chile proposed The Board of Directors of Coronel families sign Power Plant begins op- confirms rating of Enel merger with Enel Green Enel Chile, unanimously an agreement with Enel erations Chile and Enel Gener- Power in Chile and PTO by the members present Generación Chile Enel Generación Chile ación Chile at BBB+ for 100% of Enel Gx at the session, agreed to Nearly 144 relocated began the operation of On July 13, the rating Chile consider the operation families, from the Huer- the dome on the north agency confirmed the Enel Chile presented previously described a tos Familiares area of coal field of the Bocam- rating of both compa- a proposal to add the related party transaction Coronel, and Enel Gen- ina power plant, becom- nies, highlighting the sol- non-conventional renew- (OPR in its Spanish ac- eración Chile signed an ing the first electricity id financial condition re- able generation assets ronym) and to therefore agreement involving a generation facility to sulting from an adequate of Enel Green Power in be subject to the proce- financial compensation implement this type of commercial policy that Chile by merging with the dures and requirements for the inconveniences system to improve coal mitigates the operation- company. This merger established by Title XVI of receiving homes with management. The roof al risk of the generation would lead to all conven- of the Chilean Corpora- construction deficien- on the south coal field is business. They also high- tional and non-conven- tions Law, a mechanism cies. The agreement also under construction. lighted the stable and tional renewable gener- to protect minority share- also considered building Both projects involve consistent distribution ation operations of Enel holder. an outdoor recreational an investment of nearly business regulation. in Chile to be executed field and developing a US$50 million. by Enel Chile through its method to determine the subsidiaries. The propos- house repairs needed. al conditions this merg- These activities seek to er to the success of the implement solutions that PTO (Public Tender Offer) are consensual and con- to be carried out by Enel tribute to the new char- Chile to purchase up to acteristics being given to 100% of the shares of the neighborhood. its subsidiary Enel Gen- eración Chile held by mi- nority shareholders.
12 Annual Report Enel Chile 2017 OCTOBER NOVEMBER DECEMBER Enel Generación Chile Enel Distribución inau- Transantiago received Shareholders´ Meeting Moody´s confirms rat- is awarded 54% of the gurated the first office the first electric buses of Enel Chile approved ing of Enel Generación electricity tender in Concepcion and pre- The vehicles were pur- the Group´s Reorgani- Chile Enel Generación Chile sented the first electric chased by Enel and were zation in the country The international agency was the real winner of car charging station in leased to Metbus for the The Extraordinary Share- ratified the rating of Enel the 2017 electricity sup- the Bio Bio Region next ten years. They were holders Meeting of Enel Generación Chile and ply tender. The Compa- This is the first commer- added to bus route 516. Chile approved imple- with a stable outlook. ny was awarded 54% of cial office outside of the Enel Distribución also menting the Elqui Oper- the electricity tendered, company’s concession designed a model so that ation, which consists of 2,200 GWh a year begin- area. The goal is to of- the different bus opera- reorganizing the compa- ning in 2024 for regulated fer several personalized tors that want to partici- ny, merging Enel Green customers for 20 years. solutions to companies, pate in the next Transan- Power Latin America S.A. An agreement between institutions and homes, tiago bid (that will require into Enel Chile. As a con- Enel Generación Chile increasing market share at least 90 electric buses sequence, all convention- and Enel Green Power in different markets. The for the different routes) al and nonconventional made this possible by main business lines to have a defined and con- renewable generation allowing the company to develop are: electricity to venient alternative to in- operations of the Group present a competitive of- nonregulated customers; corporate zero emission in the country will be fer in the tender. efficient street lighting; technology in their fleet. developed by Enel Chile energy efficiency proj- though its subsidiaries. ects and spreading the The MOP and Enel Gen- use of electric mobili- eración Chile signed a ty. The first electric car permanent agreement charging station in the re- to operate and maintain gion was installed in the the Laja reservoir parking lot of the building The agreement, which where the company’s was ratified by the asso- new office is located. ciations of the farmers in the area, supplements the agreement signed in 1958 and guarantees satisfying the water re- quirements of farmers, and adds flexibility to the use of water for electrici- ty generation.
Milestones 2017 13 04 Main financial and operating data
14 Annual Report Enel Chile 2017 Rapel hydro power plant
Letter from the Chairman 15 16 Annual Report Enel Chile 2017 As of As of December 31st of each year (figures in millions of Chilean pesos)(1) 2011 2012 2013 2014 2015 2016 (5) 2017 Total Assets 5,398,711 5,694,773 Total Liabilities 1,935,717 1,907,811 Operating Revenue 2,136,041 2,529,347 EBITDA 627,547 739,252 Net Income (2) 317,561 349,383 Current Ratio 1.13 1.29 Debt Ratio (3) 0.56 0.50
As of December 31 of each year Generation Business 2011 2012 2013 2014 2015 2016 2017 Number of employees 1,081 1,141 1,141 1,261 995 883 848 Number of Generation units 104 105 105 111 111 111 111 Installed capacity (MW) 5,221 5,571 5,571 6,351 6,351 6,351 6,351 Electricity generated (GWh) 19,296 19,194 19,432 18,063 18,294 17,564 17,073 Energy sales (GWh) 20,315 20,878 20,406 21,157 23,558 23,689 23,356
As of December 31, of each year Distribution Business 2011 2012 2013 2014 2015 2016 2017 Energy sales (GWh) (4) 13,697 14,445 15,152 15,690 15,893 15,924 16,438 Number of customers 1,637,977 1,658,637 1,693,947 1,737,322 1,780,780 1,825,519 1,882,394 Energy losses 5.50% 5.40% 5.30% 5.32% 5.31% 5.33% 5.10% Number of employees 712 734 745 690 686 690 669 Customers/Employees 2,301 2,260 2,274 2,518 2,596 2,653 2,814
(1) Accounting figures as determined by the instructions and regulations issued by the SVS (currently Financial Market Commission or “CMF”). (2) Net earnings attributable to the controlling shareholder. (3) Total Liabilities/Equity plus Minority Interest. (4) Due to changes in the criteria, non-billable consumption (CNF in Spanish acronym) is not included in 2014 and 2015. (5) Only ten months since its creation (March 1, 2016).
Main financial and operating data 17 05 Identification of the Company and documents of incorporation
18 Annual Report Enel Chile 2017 Chena substation
Letter from the Chairman 19 Identification of the Company
Name Enel Chile S.A. Address Santiago, although able to establish branches or agencies in other parts of the country or abroad Company Type Publicly held Limited Liability Stock Corporation Taxpayer ID No 76,536,353-5 Address 76 Santa Rosa St., Santiago, Chile Zip Code 833-0099 SANTIAGO Telephone No (56) 2353 4400 – (56-2) 2378 4400 P.O. Box 1557, Santiago Securities Registration No 1,139 External Auditors Ernst & Young Subscribed and paid-in capital (ThCh$) 4,120,836,253,206 Website www.enelchile.cl Email [email protected] Investor Relations Telephone (56-2) 2353 4682 Ticker in Chilean stock exchanges ENELCHILE Ticker in New York stock exchange ENIC Custodial Bank ADR’s Banco Santander Chile Depositary Bank ADR’s Citibank N.A. Domestic Risk Rating Agency Feller Rate and Fitch Chile Clasiifcadora de Riesgos Limitada International Risk Rating Agency Standard & Poor´s Documents of incorporation
Enel Chile S.A., formerly “Enersis Chile S.A.”, was created Torrealba Acevedo, and its extract was registered in the as a consequence of the corporate reorganization that be- Commercial Register (Registro de Comercio del Conser- gan in April 2015. Enersis S.A. controlled the generation, vador de Bienes Raíces y Comercio de Santiago) on pages transmission and distribution business in Chile and four 4,288 No 2,570 of the year 2016 and published in the Offi- other countries in the region (Argentina, Brazil, Colombia, cial Gazette on January 20, 2016. and Peru). Later, on October 4, 2016, the shareholders of Enersis The Extraordinary Shareholders’ Meeting of Enersis S.A. Chile S.A. approved changing the name of the Company to held on December 18, 2015, approved the first phase of “Enel Chile S.A.” This agreement was recorded in a public the reorganization plan named “the Division,” which cre- deed on October 18, 2016 by the Santiago Notary Public, ated Enersis Chile S.A. as the only vehicle to control the Mr. Ivan Torrealba Acevedo. Its extract was registered in Group’s generation and distribution assets in Chile. Enersis the Commercial Register (Registro de Comercio del Con- S.A became Enersis Americas S.A., the vehicle to control servador de Bienes Raíces y Comercio de Santiago) on all assets of the businesses in other countries in the re- pages 79,330 No 42,809 of the year 2016 and published in gion. The Division was recorded in a public deed issued the Official Gazette on October 28, 2016. on January 8, 2016 by the Santiago Notary Public, Mr. Ivan
20 Annual Report Enel Chile 2017 Finally, on December 20, 2017, the shareholders approved as, software, hardware, licenses, software development, amending the bylaws to include the agreements regard- and in general, any product related to the aforementioned ing the merger of Enel Green Power Latin America S.A. activities; and consulting services in all subjects related to into Enel Chile, its capital increase and other agreements the previously mentioned subjects. It may also invest and adopted during said Shareholders’ Meeting, replacing the manage its subsidiaries and associate companies, whether articles referring to its capital, and corporate purpose to generators, transmitters, distributors or traders of electric- include information technology and communications , ity or whose business is any of the following: (i) energy, in among other amendments, and agreeing to the rewritten any of its forms or nature, (ii) the supply of public utilities or and updated text of the bylaws, subject to the conditions whose main input is energy, (iii) telecommunications and approved at the Meeting. The minute of said Shareholders’ information technology, and (iv) intermediation over the in- Meeting was recorded as a public deed dated December ternet. In complying with its main purpose, the company 28, 2017, by the Santiago Notary Public, Mr. Ivan Torrealba will carry out the following functions: Acevedo, and its extract was registered in the Commercial Register (Registro de Comercio del Conservador de Bienes a) Promote, organize, incorporate, modify, dissolve or liq- Raíces y Comercio de Santiago) on pages 1154 No 629 of uidate companies of any nature that have a corporate the year 2018 and published in the Official Gazette on Jan- purpose similar to the Company’s corporate purpose. uary 5, 2018. b) Propose investment, financing and business policies to subsidiary companies, as well as accounting criteria and systems that these should follow. c) Supervise the management of subsidiaries. d) Provide subsidiaries or associate companies with the Corporate necessary financing to develop their business and pro- vide them management services; financial, technical, purpose legal and auditing advice; and in general, any service that appears necessary to improve their performance.
The corporate purpose of the company appears in the In addition to its main purpose and always acting within bylaws amendment approved by the Extraordinary Share- limits established by the Investment and Financing Policy holders Meeting held on December 20, 2017 and recorded approved by the Shareholders Meeting, the Company may as a public deed dated December 28, 2017 granted by the invest in: Santiago Notary Public Mr. Iván Torrealba Acevedo, and its extract was registered on pages 1154 No 629 of the year First, the acquisition, operation, construction, rental, ad- 2018 and published in the Official Gazette on January 5, ministration, intermediation, trading, and disposal of all 2018. kinds of movable and immovable assets, either directly or through subsidiaries or associate companies. The Company’s purpose is to perform the exploration, de- velopment, operation, generation, distribution, transmis- Second, all kinds of financial assets, including shares, sion, transformation and sales of energy in any of its forms bonds and debentures, commercial paper and in general all and nature, directly or through other companies, and also kinds of titles or securities and company contributions, ei- research, development, operation, commercialization, pur- ther directly or through subsidiaries or affiliate companies. chase, sale, imports and maintenance of any goods related to information technology and telecommunications, such
Identification of the Company and Documents of Incorporation 21 06 Ownership and control
22 Annual Report Enel Chile 2017 Letter from the Chairman 23 Ownership structure
Ownership structure
The total share capital of the Company was divided into 49,092,772,762 shares of a single series with no par value in which each share represents the right to one vote. No shares give the state the right to veto.
As of December 31, 2017, all shares were subscribed and paid, and ownership was distributed as follows:
Shareholders Number of shares Ownership share Enel S.p.A. 29,762,213,531 60.62% Foreign Investment Funds 6,875,434,501 14.00% Pension Funds (A.F.P) 5,115,438,567 10.42% Citibank N.A. (Circular 1375 S.V.S) 3,477,135,400 7.08% Stock Brokers, Insurance companies and Mutual Funds 2,610,789,444 5.32% Others 1,251,761,319 2.55% Total Shares 49,092,772,762 100.00%
On December 20, 2016 the agreement was formalized and recorded in a public deed granted by the Madrid Notary, Mr. Identification of the Andrés Domínguez Nafría. The merger was registered in the Controlling Shareholder Commercial Register of Madrid and the Company’s Share- holder Registry on February 13, 2016, although the registra- tion was retroactively effective as of the date of its presenta- As defined by Title XV of Law 18,045, Enel Chile S.A. is con- tion, which took place on December 21st, 2016. trolled by Enel S.p.A., a publicly traded Italian company, that owns 60.62% of the shares issued by Enel Chile S.A. The Board of Directors of Enel Iberoamérica S.R.L., in its ses- sion held on April 6, 2017, agreed to divide Enel Iberoamérica On December 19, 2016, Enel Latinoamérica, S.A. and Enel S.R.L. and incorporate, according to Italian regulation, Enel Iberoamérica, S.R.L. agreed to merge by the latter absorbing South América S.R.L. that would become the owner of the the first and therefore dissolving Enel Latinoamérica, S.A., interests held by Enel Iberoamérica S.R.L. in Enel Chile and and Enel Iberoamérica, S.R.L. becoming the surviving entity Enel Américas S.A. with all legal rights, obligations, and third-party relationships.
24 Annual Report Enel Chile 2017 On November 16, 2017, the merger of Enel South America S.R.L. with and into Enel S.p.A. was registered in the Company Register of Roma, Republic of Italy. As a result of the merger, Enel S.p.A. was the surviving entity with all legal rights, and obli- gations of Enel South America S.R.L. Consequently, as of that date, Enel S.p.A. directly controls Enel Chile S.A. (with a 60.62% ownership share).
Shareholders of Enel S.p.A at December 31, 2017 Ministero dell’Economia e delle Finanze de Italia 23.6% BlackRock Inc. 5.6% Other Investors (Institutional or Retail) 70.8% Total 100.0%
The shareholders of the controlling entity do not have a shareholders’ agreement.
Twelve Major Shareholders of the Company at December 31, 2017:
Number of Name Taxpayer ID Shares Shareholding Enel S.p.A. 59,243,980-8 29,762,213,531 60.62% Citibank N.A. per SVS Letter 1,375 59,135,290-3 3,477,135,400 7.08% Banco de Chile on behalf of nonresident third parties 97,004,000-5 2,889,586,476 5.89% Banco Itaú Corpbanca on behalf of foreign investors 97,023,000-9 2,345,100,592 4.78% Banco Santander on behalf of foreign investors 97,036,000-K 1,574,876,510 3.21% AFP Provida S.A. Pension Fund C 76,265,736-8 762,820,688 1.55% AFP Capital S.A. Pension Fund C 98,000,000-1 622,421,137 1.27% AFP Hábitat S.A. Pension Fund C 98,000,100-8 564,376,246 1.15% AFP Cuprum S.A. Pension Fund C 76,240,079-0 542,274,465 1.10% BANCHILE C DE B S.A. 96,571,220-8 395,718,609 0.81% LARRAIN VIAL S.A. Stock Broker 80,537,000-9 368,863,381 0.75% AFP CUPRUM S.A. Pension Fund A 76,240,079-0 319,159,851 0.65% Subtotal 12 shareholders 43,624,546,886 88.86%
Other 6,447 shareholders* 5,468,225,876 11.14%
TOTAL 6,459 SHAREHOLDERS 49,092,772,762 100.00%
* No current shareholders belong to families of the Company´s founders. The government nor any state-owned entity holds more than 5% ownership of the Company.
Ownership and control 25 Twelve Major Shareholders of the Company at April 2, 2018:
As a consequence of the success of the corporate reorganization entitled Elqui Plan and our PTO for the shares of the subsidiary Enel Generación Chile S.A. the following are the twelve major shareholders of the Company as of April 2, 2018:
Shares at Name TAXPAYER ID. Address District City 04/02/2018 Enel S.P.A. 59,243,980-8 Santa Rosa 76 Santiago Santiago 29,762,213,531 HIDROMAC ENERGY S.R.L. 59,148,080-4 Ave. Presidente Riesco 5335 Floor 15 Las Condes Santiago 13,057,995,999 CITIBANK N.A. SEGÚN CIRCULAR 1375 S.V.S. 59,135,290-3 Bandera 140 Floor 4 Santiago Santiago 3,825,516,073 Banco de Chile on behalf of non-resident third parties 97,004,000-5 Ahumada 251 Santiago Santiago 3,449,134,209 Banco Itau Corpbanca on behalf of Foreign Investors 97,023,000-9 Ave. Apoquindo 3457 Santiago Santiago 2,775,513,159 Banco Santander on behalf of Foreign Investors 97,036,000-k Matías Cousiño 167 Floor 1 Santiago Santiago 1,902,281,157 AFP PROVIDA S.A PENSION FUND C 76,265,736-8 Agustinas 640 Floor 18 Santiago Santiago 1,414,032,334 AFP HABITAT S.A. PENSION FUND C 98,000,100-8 Ave. Providencia 1909 Floor 9 Providencia Santiago 1,145,115,714 Enel Chile S.A. withdrawal rights 76,536,353-5 Ave. Santa Rosa 76 Floor 16 Santiago Santiago 963,762,272 AFP CAPITAL S.A. PENSION FUND C 98,000,000-1 Ave. Suecia 211 Floor 10 Providencia Santiago 959,953,370 AFP CUPRUM S.A. PENSION FUND C 76,240,079-0 Bandera 236 Floor 7 Santiago Santiago 911,760,855 Banchile C. de B. S.A. 96,571,220-8 Agustinas 975 Floor 209 Santiago Santiago 620,675,873
26 Annual Report Enel Chile 2017 Most important changes in ownership share
N° OF SHARES N° OF SHARES VARIATION NAME TAXPAYER ID. AT 12/31/2016 12/31/2017 % Citibank N.A. según circular 1375 S.V.S. 59,135,290-3 3,818,628,500 3,477,135,400 -0.6956% Banco de Chile on behalf of non-resident third parties 97,004,000-5 2,689,380,833 2,889,586,476 0.4078% Banco Itau Corpbanca on behalf of Foreign Investors 97,023,000-9 1,953,577,727 2,345,100,592 0.7975% AFP Provida S.A. 76,265,736-8 1,753,517,650 1,379,706,719 -0.7614% Banco Santander on behalf of Foreign Investors 97,036,000-K 1,298,404,727 1,574,876,510 0.5632% AFP Capital S.A. 98,000,000-1 1,278,113,973 1,108,850,445 -0.3448% AFP Habitat S.A. 98,000,100-8 1,239,643,962 1,016,399,034 -0.4547% AFP Cuprum S.A. 76,240079-0 1,201,123,076 1,119,912,164 -0.1654% Banchile Corredores de Bolsa S.A. 96,571,220-8 322,970,265 395,718,609 0.1482% Larraín Vial S.A. Stock Broker 80,537,000-9 307,280,681 368,863,381 0.1254% Bci Corredores de Bolsa S.A. 96,519,800-8 266,424,196 146,850,110 -0.2436% BTG Pactual Chile S.A. Stock Broker 84,177,300-4 246,523,559 225,359,878 -0.0431% AFP Planvital S.A. 98,001,200-K 191,339,568 187,665,115 -0.0075% AFP Modelo S.A. 76,762,250-3 190,407,528 302,905,090 0.2292% Santander Corredores de Bolsa Limitada 96,683,200-2 169,490,609 190,942,944 0.0437% Santiago Stock Exchange 90,249,000-0 166,004,740 122,824,128 0.0441%
Stock market transactions among related parties during 2017
There were no transactions among related parties during 2017.
Summary of comments and proposals by the Directors Committee and shareholders
Enel Chile received no comments or proposals regarding the progress of corporate businesses between January 1 and December 31, 2017, from the Directors’ Committee or shareholders that own or represent 10% or more of the shares issued with voting rights, in accordance with the provisions of Article 74 of Law 18,046 and Articles 136 of the Rules and Regulations to the Chilean Corporations Law.
Ownership and control 27 07 Management
28 Annual Report Enel Chile 2017 Letter from the Chairman 29 Board of Directors
Enel Chile is managed by a Board of Directors comprised of seven members for a three-year term and may be reelected. The Board of Directors was elected at the Ordinary Shareholders’ Meeting held on April 28, 2016. As stated by the Chilean Corporations Law, in the event of a vacancy, the Board must be totally renewed at the Company’s forthcoming Ordinary Shareholders’ Meeting, and the Board may appoint a substitute in the interim. The Board does not have alternate mem- bers.
1 2 3 4
5 6 7
1. CHAIRMAN 2. DIRECTOR 5. DIRECTOR Herman Chadwick Piñera Giulio Fazio Daniele Caprini Lawyer Lawyer Undergraduate degree in Economics Pontificia Universidad Católica de Chile Universidad de los Estudios de Palermo Università degli Studi di Siena Taxpayer ID: 4,975,992-4 Passport: YA 4656507 Master in Business Administration Since 04.28.2016 Since 04.28.2016 Universidad de LUISS-Rome Passport: YA9188092 3. DIRECTOR Since 03.01.2018 Salvatore Bernabei Industrial Engineer 6. DIRECTOR Università degli Studi di Roma “Tor Vergata” Gerardo Jofré Miranda Over the last few years the following Master’s Degree in Business Administration Commercial Engineer Individuals were also directors of Politécnica di Milano Pontificia Universidad Católica de Chile Enel Chile: Taxpayer ID: 24,220,743-2 Taxpayer ID: 5,672,444-3 Since 04.28.2016 Since 04.28.2016 Vincenzo Ranieri Undergraduate degree in Business 4. DIRECTOR 7. DIRECTOR Management Fernán Gazmuri Plaza Pablo Cabrera Gaete Universidad de LUISS- Italy Commercial Engineer Lawyer and Diplomat Passport: YA 7616919 Pontificia Universidad Católica de Chile Pontificia Universidad Católica de Chile and From 04.28.2016 Taxpayer ID: 4,461,192-9 Academia Diplomática Andrés Bello Until: 02.28.2018 Since 04.28.2016 Taxpayer ID: 4,774,797-K Since 04.28.2016
30 Annual Report Enel Chile 2017 Board of Directors’ and Directors’ Committee Compensation
Under Article 33 of Law 18,046, the Chilean Corporations The compensation of the Directors’ Committee consists of Act, the Ordinary Shareholders’ Meeting held on April 26, a variable amount equal to 0.11765 thousandths of the an- 2017 approved the compensation of the Board of Directors nual net income. An advance payment equal to one month- and Directors’ Committee for 2017. ly compensation is paid to each director. A portion of such monthly advance payment is unconditional and a portion is The compensation of the Board of Directors consists of a conditional. Advances are deducted from the yearly vari- variable annual amount equal to one thousandths of the an- able compensation equal to a fixed monthly amount equal nual net income. An advance payment equal to one month- to 60 UF and an additional 22 UF per session attended with ly compensation is paid to each director. A portion of such a maximum of 15 sessions in total, either ordinary or ex- monthly advance payment is unconditional and a portion is traordinary. conditional to the annual variable amount referred to above. Advances are deducted from the yearly variable compensa- The total compensation expense during 2017 amounted tion equal to a fixed monthly amount equal to 180 UF and to Ch$ 530,674,977 and is detailed in the following table. an additional 66 UF per session attended with a maximum The Board of Directors did not have additional expenses for of 15 sessions in total, either ordinary or extraordinary. consulting services.
Board of Directors’ compensation in 2017
Directors Committee Ordinary and Committee’s Ordinary and Figures in Ch$ Fixed Extraordinary Fixed Extraordinary Variable Board Member Name Position Compensation Sessions Compensation Sessions Compensation TOTAL 2017 Herman Chadwick Piñera Chairman 114,858,878 63,205,976 - - - 178,064,854 Giulio Fazio (1) Director ------Salvatore Bernabei (1) Director ------Vincenzo Ranieri (1) Director ------Fernán Gazmuri Plaza Director 57,429,439 31,602,988 19,143,146 9,361,134 - 117,536,707 Juan Gerardo Jofré Miranda Director 57,429,439 31,602,988 19,143,146 9,361,134 - 117,536,707 Pablo Cabrera Gaete Director 57,429,439 31,602,988 19,143,146 9,361,134 - 117,536,707 Total 287,147,196 158,014,940 57,429,439 28,083,402 - 530,674,977
(1) The Director waived his compensation for being an executive of the Enel SpA Group
The total compensation expense for 2016 was Ch$441,917,998 and is detailed in the following table. The Board of Directors did not have additional expenses for consulting services.
Management 31 Board of Directors’ compensation in 2016
Directors Committee Ordinary and Committee’s Ordinary and Figures in Ch$ Fixed Extraordinary Fixed Extraordinary Variable Board Member Name Position Compensation Sessions Compensation Sessions Compensation TOTAL 2016 Herman Chadwick Piñera Chairman 84,744,306 44,833,393 - - - 129,577,699 Giulio Fazio (1) Vice Chairman ------Salvatore Bernabei (1) Director ------Vincenzo Ranieri (1) Director ------Fernán Gazmuri Plaza Director 51,643,865 29,219,885 17,214,472 8,035,211 - 106,113,433 Juan Gerardo Jofré Miranda Director 51,643,865 29,219,885 17,214,472 8,035,211 - 106,113,433 Pablo Cabrera Gaete Director 51,643,865 29,219,885 17,214,472 8,035,211 - 106,113,433 Total 239,675,900 132,493,048 51,643,417 24,105,633 - 441,917,998
(1) The Director waived his compensation for being an executive of the Enel SpA Group
32 Annual Report Enel Chile 2017 Incentive plan Ownership in Enel Chile S.A. Director’s compensation for 2017 did not include an incen- tive plan. As of December 31, 2017, according to the shareholder’s register, none of the Directors in office owned shares of the Company. Board of Directors’ consulting expenses Directors’ Committee
The Board of Directors did not spend on consulting ser- vices in 2017. Enel Chile S.A., formerly Enersis Chile S.A., was created as a consequence of the Division of Enersis S.A. approved by the Extraordinary Shareholders’ Meeting of the compa- ny held on December 18, 2015. On February 29, 2016, the Diversity in the Board of Directors appointed the members to the Compa- ny’s first Directors’ Committee. The Directors appointed to Board of Directors compose the Directors’ Committee were Fernán Gazmuri Plaza, Gerardo Jofré Miranda and Pablo Cabrera Gaete. On February 29, 2016, the Board of Directors, after the Ordi- Number of people by gender: nary Shareholders Meeting held on April 28, 2016 that ap- Female 0 Male 7 pointed the members to the Board of Directors, designat- Total 7 ed the same gentlemen Gazmuri Plaza, Jofré Miranda and Cabrera Gaete as members to the Directors’ Committee, all independent directors as defined by Article 50 bis of the Number of people by nationality: Chilean Corporations Law 18,046. Mr. Fernán Gazmuri Pla- Chilean 4 Italian 3 za was appointed Chairman of the Directors’ Committee Total 7 during the ordinary session of the Directors’ Committee and Mr. Domingo Valdés Prieto was appointed Secretary to the Directors’ Committee. Number of people by age group: Between 41 and 50 years 3 Between 51 and 60 years 0 Between 61 and 70 years 2 More than 70 2 Total 7
Number of people by years of service: Less than 3 years 7 More than 12 years 0 Total 7
Management 33 - During the extraordinary session held on May 4, 2017, Annual Report the Directors’ Committee unanimously declared hav- ing examined the Consolidated Financial Statements of the Company as of March 31, 2017 and its Notes, Income Statement and Significant Events. The Directors’ Committee of the Company held seventeen sessions during 2017, including the present session fully - During the ordinary session held on September 28, complying with the obligations established in Article 50 bis 2017, the Directors’ Committee unanimously declared of the Chilean Corporations Act 18,046 and additional ap- having examined the Consolidated Financial State- plicable regulation. ments of the Company as of June 31, 2017 audited under IFRS norm by Ernst & Young “without exception” During 2016, the Directors’ Committee addressed the mat- and also performed a limited review under the PCAOB ters that are summarized below: standard by the same auditors. During the same ses- sion, the Directors’ Committee resolved declaring 1.- Financial statements having examined the Proforma Consolidated Financial - During the session held on February 28, 2017, the Di- Statements of the Company as of June 30, 2017 and rectors’ Committee analyzed the financial statements December 31, 2016 issued with Ernst &Young´s attes- to register the Company and its shares in the SVS and tation report. unanimously agreed to approve the Combined Finan- cial Statements as of December 31, 2015, including - During the ordinary session held on November 3, 2017, relevant supplementary information as well as the re- the Directors’ Committee unanimously declared having spective auditors report by Ernst & Young. The directors examined the Consolidated Financial Statements of of the committee also recommended that the board the Company as of September 30, 2017 and its Notes, of directors approve said financial statements. The Di- Income Statement and Significant Events, and also the rectors’ Committee also agreed to request the Chief opinion of the external auditors issued “without excep- Administration, Finance and Control Officer to have tion” dated November 3, 2017 and signed by Mr. Emir the External Auditors, Ernst & Young, make a specific Rahil, partner of Ernst & Young agreeing to recommend presentation in the forthcoming Directors’ Committee the Board of Directors of the Company to approve session on the related party transactions taken place them. during March and September of every year as well as a review of the lawsuit and derivatives provisions. - During the extraordinary session held November 2017, the Directors’ Committee unanimously declared hav- - During the session held on March 30, 2017, the Direc- ing examined the proforma combined financial state- tors’ Committee examined the modifications to the In- ments of Enel Chile as of September 30, 2017, and its ternational Financial Reporting Standards to be in force respectives notes. The Directors’ Committee declared beginning January 1, 2018. having examined these financial statements subject to the condition that the Board of Directors validate - During the same session held on March 30, 2017, the the asumptions underlying such financials. During the Directors Committee unanimously agreed to declare same session, and also unanimously, the Directors’ having reviewed the equity accounts of the Company Committee resolved to declare having examined the in the Consolidated Financial Statements of Enel Chile consolidated financial statements of the Company as as of December 31, 2016, based on the presentation of September 30, 2017, and the report on the limited performed by the Chief Administration Officer, Mr. review performed by Ernst & Young and their limited Paolo Pirri. review under PCAOB standards.
34 Annual Report Enel Chile 2017 2. External Auditors report on bank transfers and mit it to the Ordinary Shareholders Meeting for final money brokerage: During the session held on Feb- approval. ruary 28, 2017, the Directors’ Committee unanimous- ly agreed to acknowledge that they had formally and 5. External auditors’ examination of subjects covered expressly noted the report on money brokerage and by NCG 385: During the ordinary session held on Feb- bank transfers prepared by Ernst & Young, the external ruary 28, 2017, the Directors’ Committee unanimous- auditors of Enel Chile S.A., dated February 28, 2017. ly declared that the External Auditors had examined subjects voluntarily presented as good corporate gov- 3. Examination of internal control letter SVS Circular ernance included in numeral 1 d) of the SVS General 422: On December 6, 2007, the Superintendence of Norm 385 and declared that none of the subjects re- Securities and Insurance issued Circular 422, which ferred to by items ii, iii and v of such numeral had taken supplements Circular 980 dated December 24, 1990. place. This Circular offers specific instructions on internal con- trol procedures, providing for the submission of a pro- 6. External auditors’ fees in fiscal year 2016: During the visional report and a broad time frame for the external ordinary session held on February 28, 2017, the Direc- auditors to submit a final internal control report, allow- tors’ Committee unanimously agreed to approve the ing it to be delivered until the date in which the Board fees paid during 2016 by the Company to the different of Directors takes note of the financial statements at auditing firms hired. year end of each fiscal year. 7. Supervision and evaluation of external auditors: Thus, in ordinary session of February 28, 2017 the Di- During the ordinary session held on February 28, 2017, rectors’ Committee, unanimously agreed to record that the Directors’ Committee unanimously agreed to grade it had taken formal knowledge of the Internal Control the work performed in 2016 by the Company´s external Letter dated February 28, 2017, prepared by Ernst & auditors, Ernst & Young, as reasonable. Young, to comply with the regulations issued by the Superintendence of Securities and Insurance (SVS), on 8. Services to be rendered by external auditors: During this matter. In ordinary session of November 28, 2017, the ordinary session held on February 28, April 26, the Directors’ Committee unanimously agreed to re- June 27, July 25 and August 30 (extraordinary) Septem- cord that it had examined and taken knowledge of the ber 28, October 26, and December 20, all in 2017, the Internal Control Letter referred to Enel Chile S.A., dated non-recurrent services to be rendered by the external November 28, prepared by the external auditors of the auditors were examined. The Committee agreed to de- Company, Ernst & Young. clare that such services do not compromise the techni- cal competence nor the independent judgement of the 4. Directors’ Committee Budget: On February 28, respective external auditing firms, as stated in Section 2017, the Directors’ Committee unanimously agreed 202 of the Sarbanes Oxley Act 2017, in the last para- to approve the Directors’ Committee 2017 Budget graph of Article 242 of the Capital Markets Law 18,045 amounting to 10,000 Unidades de Fomento (Chilean and in the Directors´ Committee Regulations. inflation-indexed, Chilean peso-denominated monetary unit) for the Committee and its consultants’ expenses - During session held on November 28, 2017, the Direc- and operations. The members of the Directors’ Com- tors’ Committee unanimously agreed to declare having mittee also unanimously decided to submit this 2017 examined the presentation on non-recurrent external Directors’ Committee Budget proposal to the approval auditor services performed by the Chief Administration of the Board of Directors so that, if approved, they sub- Officer, Mr. Paolo Pirri. The Directors’ Committee also
Management 35 noted that the information presented covered the mat- ters that the Directors’ Committee had in fact examined - During the ordinary session held on February 28, 2017, during the year and that the cost of the services men- the Directors’ Committee declared having examined tioned had increased along with the Elqui Operation in the Related Party Transaction regarding the staff func- process, but that it had, by no means, compromised tion services provided by Enel Chile to the subsidiaries the independence of the Company’s external auditors. of Enel green Power. The Directors’ Committee also declared having examined the resolution of the sus- 9. 20-F Form submitted to the SEC (Securities and Ex- tainability and institutional relations services contract in change Commission of the United States of Ameri- force between Enel Chile and EGP Chile. The Commit- ca): During the ordinary session held on April 26, 2017, tee declared that the contract for such services contrib- the Directors’ Committee unanimously declared having uted to the best interest of Enel Chile S.A. and adjusted examined the financial statements under IFRS to be in price, terms and conditions to those prevailing in the included in the 20-F Form with the changes proposed market at the time of its approval. by the Director Mr. Gerardo Jofré, to comply with the rules and requirements of the SEC regarding securities - During the ordinary session held on August 25, 2017, issued in the United States of America. the Directors’ Committee unanimously declared having examined the Related Party Transaction regarding the 10. 2017 External Auditor Plan: During the extraordinary investor relations services provided by Enel Green Pow- session held on May 31, 2017, the Directors’ Commit- er North America, in the United States of America juris- tee unanimously declared having analyzed the presen- diction, to Enel Chile S.A. declaring that the transaction tation by the partner of Ernst & Young, Emil Rahil, on contributed to the best interest of Enel Chile S.A. and the 2017 External Auditor Plan. adjusted in price, terms and conditions to those prevail- ing in the market at the time of its approval, as stated 11. Examination of related party transactions: During by the report issued by the Administration, Finance and the ordinary session held on January 23, 2017, the Di- Control department of the Company. rectors’ Committee unanimously declared having ex- amined the Related Party Transaction with Enel Italia - During the ordinary session held on October 26, 2017, SrL related to the investment project (Capex) to imple- the Directors’ Committee declared having examined ment the new Sap information system, Enel Chile´s the Related Party Transaction regarding the services E4E program, for an estimated total 2.2 million Euros provided by Enel SpA to Enel Chile S.A. declaring that of which a maximum 700,000 Euros was paid to Enel the transaction contributed to the best interest of the Italia SrL, and declaring the transaction contributed to Company and adjusted in price, terms and conditions the best interest of the Company and adjusted in price, to those prevailing in the market at the time of its ap- terms and conditions to those prevailing in the market proval, as stated by the report issued by Pricewater- at the time of its approval, as stated by the report is- houseCoopers and the presentation prepared by the sued by PricewaterhouseCoopers. representative of the consulting firm.
- During the same ordinary session held on January 23, 12. Proposed private risk rating agencies: During the 2017, the Directors’ Committee declared having exam- ordinary session held on February 28, 2017, the Direc- ined the Related Party Transaction regarding the legal tors’ Committee unanimously agreed to propose to the services provided by Enel Chile to Enel Generación Company’s Board of Directors to suggest Feller Rate Chile and Enel Distribución Chile and the direct sub- Clasificadora de Riesgo Limitada and Fitch Chile Clas- sidiaries of each one of them, declaring that the trans- ificadora de Riesgo Limitada as local private risk rating action contributed to the best interest of the Company agencies and Standard & Poors International Rating and adjusted in price, terms and conditions to those Services as the international private risk rating agency prevailing in the market at the time of its approval. for fiscal year 2017.
36 Annual Report Enel Chile 2017 plaints received through the ethics channel and there- 13. Proposed External Auditors: During the ordinary fore proposed that the Internal Audit Department verify session held on March 30, 2017, the Directors’ Com- if the employees of the Company and its subsidiaries mittee unanimously agreed to propose to the Com- know how the Ethics Channel works and requested an pany’s Board of Directors to propose to the Ordinary industry benchmark on the subject and a benchmark Shareholders’ Meeting the following auditing firms, in of other Enel Group companies. The Head of Internal the order of preference presented, as the external au- Audit explained the different diffusion activities carried ditor firm of Enel Chile S.A. for 2017: 1-E&Y; 2-BDO; out highlighting that the activities included employees 3-RSM and 4-PKF. The arguments considered relevant and suppliers of Enel Chile and Its subsidiaries. in proposing E&Y in first place as external auditor of the Company are the following: (i) it presented the Mr. Gerardo Jofré emphasized the importance of hav- most competitive proposal based on the technical and ing a benchmark by industry and of other Enel Group economic evaluations performed on the proposals re- companies and stated that he was surprised that there ceived; (ii) it is highly qualified in terms of available re- were no complaints related to the situations caused by sources and experience in the electricity sector; (iii) it extreme wind and snow conditions. is one of the four most important auditing firms on the national and international level; (iv) it is the auditing firm 16. Corporate reorganization of Enel Chile: The Di- with greatest synergies with Enel Chile S.A. because rectors´ Committee appoints independent evaluator: E&Y is the external auditing firm of Enel S.p.A., Enel During the extraordinary session held August 30, 2017, Chile´s controlling shareholder. the Directors’ Committee, unanimously approved ap- pointing Econsult Capital as the independent evaluator 14. Approval of external auditor contracts: During the or- of the corporate reorganization entitled Elqui Project, dinary session held May 31, 2017, the Directors’ Com- as a related party transaction, and to inform the share- mittee unanimously agreed to declare having examined holders on the terms and conditions of the operation, and approved the contract to be subscribed between its effects and potential impact on the Company. Enel Chile S.A. and external auditors Ernst & Young. - During the ordinary session held August 30, 2017, the 15. Analysis of ethics channel complaints: During the Directors’ Committee, unanimously, declared having ordinary session held January 23, 2017, the Directors’ examined the preliminary report of Econsult Capital, Committee, unanimously, gave its opinion on each of the independent evaluator the Committee appointed, the complaints received, offering guidelines on how within the context of the corporate reorganization of to proceed with each complaint and confirming what Enel Chile. Through the same vote, the Directors’ Com- had been already resolved by the Committee. In this mittee agreed to request that the Chairman, Mr. Fernán regard, the Chairman of the Directors’ Committee is Gazmuri Plaza, make the preliminary report available to to summon an extraordinary session if he considers it the Chairman of the Board of Directors to be public- necessary to resolve a certain complaint. The director, ly disclosed. During the same session, the Directors’ Mr. Gerardo Jofré, expressed the importance of having Committee, unanimously, agreed to declare having ex- a specific protocol in the Procurement Department to amined the draft of the Enel Chile Directors’ Commit- separate the technical area from the “procurement” tee Collective Report and convene a meeting to work area. on the subject.
- During the ordinary session held August 25, 2017, the - During the extraordinary session held November 3, Directors’ Committee, unanimously, gave its opinion 2017, the Directors’ Committee, unanimously declared on each of the complaints received, as was indicated having examined and received the final independent in the previous paragraph. The Director, Mr. Gerardo evaluation report prepared by Econsult Capital regard- Jofré, expressed his concern regarding the few com- ing the corporate reorganization of Enel Chile. Through
Management 37 the same vote, the Directors’ Committee agreed to 18. Various other matters: During the ordinary session request that the Chairman, Mr. Fernán Gazmuri Plaza, held February 28, 2017, when the financial statements make the report available to the Chairman of the Board of the Company were being presented, the Chairman of Directors, for him to make it available to the share- of the Directors’ Committee, Mr. Gerardo Jofré Miran- holders of the Company and the public, as required by da stated that it would be useful to have a presentation regulation. During the same meeting, the Directors’ on the equity account of the Company during the next Committee, unanimously declared having examined ordinary session. The other Directors agreed. and complemented the draft of the Enel Chile Direc- tors’ Committee Collective Report, and proceeded to - During the ordinary session held March 30, 2017, the fix the schedule of meetings to work on the subject. director, Mr. Gerardo Jofré Miranda, recalled that the In the same meeting, the Chairman of the Directors’ Committee had agreed to contract the services of the Committee, Mr. Fernán Gazmuri Plaza stated that after external auditors regarding related party transactions receiving and analyzed the final report of the Indepen- and lawsuits and derivatives provisions and a presenta- dent evaluator, Econsult, it was to be delivered to the tion on the matter by the Chief Administration, Finance Chairman of the Board of Directors of the Company for and Control Officer, had been requested. Mr. Raffaele him to submit it to the Board of Directors for review Grandi explained that the services had been included in and then make it available to the shareholders, in time the contract to be subscribed once the Shareholders’ and form established by the Chilean Corporations Law. Meeting appointed the external auditors for 2017.
- During the extraordinary session held November 14, - During the ordinary session held April 26, 2017, the 2017, the Directors’ Committee, unanimously approved Chairman of the Directors’ Committee, Mr. Fernán the Enel Chile Directors’ Committee Collective Report. Gazmuri Plaza congratulated the Chief Executive Offi- cer, Legal Counsel and the Chief Financial Officer for 17. Examination of the Company´s compensation plan the excellence and success of the Ordinary Sharehold- for principal executives, managers and employees: ers Meeting of Enel Chile. The other Directors agreed During the ordinary session held May 31, 2017, the with the Chairman. Directors’ Committee, unanimously declared having examined the compensation plan of principal execu- - During the ordinary session held October 26, 2017, the tives, managers and employees of the Company. The director, Mr. Gerardo Jofré, said he considered rele- director, Mr. Gerardo Jofré, highlighted the importance vant that the Committee examine a consolidated list of analyzing the compensation that is paid as benefits, of all non-recurrent contracts and payments to Ernst & considering that employees frequently prefer receiving Young. He stressed that it was critical to the adequate benefits than the equivalent amount in cash. control of such contracts. The Chairman of the Direc- tors’ Committee and Mr. Pablo Cabrera Gaete agreed.
38 Annual Report Enel Chile 2017 - During the ordinary session held November 28, 2017, the director, Mr. Gerardo Jofré, stated that considering that the internal controls performed under the Securi- Enel Chile S.A. Directors’ ties and Exchange Commission of the United States of Committee Expenses America only focuses on significant matters, it would be convenient that Ernst & Young present all other mat- ters not considered to be as relevant during the next The Directors’ Committee did not spend its operational session. The other directors agreed with his proposal. expense budget approved by the Ordinary Shareholders Mr. Gerardo Jofré Miranda also stated that it would be Meeting held April 26, 2017. convenient to have the external auditors make a pre- sentation on the accounting status of Argentina and also analyze collections. The other directors agreed with this proposal.
Management 39 Organizational structure
a e t
M e a e m a n e a n g t e e a a M M t gn a M an a an M n e te n a ae e a te a e n nt M n t a e n Ma t n n M M eg n a a e t gn a nt ne M an n a n n ge a n M e m t ag a na an et m ng a
(1) Was appointed to this position on 02.01.2018 replacing Alain Rosolino (2) Was appointed to this position on 01.01.2018 replacing Antonio Barreda Toledo (3) Was appointed to this position on 01.31.2018.
40 Annual Report Enel Chile 2017 Senior Executives
1 2 3 4 5
6 7 8 9 10
a e t
M 11 12 13 14 e a e m a n e a n g t e e a a M M t gn a M an a an M n e te n a ae 1. CHIEF EXECUTIVE OFFICER 6. REGULATION 10. SUSTAINABILITY AND COMMUNITY Nicola Cotugno Mónica de Martino RELATIONS Mechanical Engineer Political Science Degree Antonella Pellegrini Universidad La Sapienza de Roma Universidad Luis LUISS Guido Carli. Roma Marketing and Communications Degree e a Taxpayer ID: 25,476,277-6 Executive MBA Columbia Business School. NY. and European Design Institute te a e n Since 08.16.2016 London Business School. London Roma – Italy Taxpayer ID: 25,629,782-5 Taxpayer ID: 23,819,804-6 2. CHIEF FINANCIAL OFFICER Since 05.31.2017 Since 05.31.2017 nt Raffaele Grandi M n a nt Economist 7. PROCUREMENT OFFICER 11. SAFETY e Ma t n n MM Universidad de Génova (Italy) Juan José Bonilla Andrino Andrés Pinto Taxpayer ID 24,950,967-1 Industrial Engineer Industrial Engineer Since 05.06.2016 Escuela Superior Ingenieros Industriales Madrid. Pontificia Universidad Católica de Chile n Universidad Politecnica/ Technische Universitat Diploma in Chemical Engineering eg a t a e 3. HUMAN RESOURCES AND ORGANIZATION Berlin (Germany). 01.09.2003. Pontificia Universidad Católica de Chile gn a nt ne OFFICER Master in Business Administration MBA. ESERP Taxpayer ID: 13,686,119-0 Liliana Schnaidt Hagedorn Business School. 07.01.2010. Since 05.31.2017 Industrial Engineer Master in International Business. San Pablo CEU M an Pontificia Universidad Católica de Chile University. 07.01.2014. 12. PLANNING AND CONTROL OFFICER n Taxpayer ID: 13.903.626-3 Master in Executive Business. Massachusetts Bruno Stella a n a n nge Since 02.01.2018 Institute of Technology. Boston. USA Degree in Economics and Business Taxpayer ID: 25,566,577-4 Universitá degli studi di Messina (Italia) 4. INTERNAL AUDIT OFFICER Since 01.01.2018 Taxpayer ID: 25,524,957-6 m Raffaele Cutrignelli Since 01.23.2017 M ge t a International Business Degree 8. COMMUNICATIONS OFFICER a na an Nottingham Trent University (United Kingdom). José Miranda Montecinos 13. ICT OFFICER Master in Auditing and Internal Controls Audiovisual Communicator with a degree from DUOC UC Ángel Barrios Universidad de Pisa (Italy) Management Skills Diploma. Universidad de Chile Computer Science Engineer Diploma in Strategy. Innovation. Management and Corporate Entrepreneurship and Open Innovation, Universidad Federico Santa María et ng a Leadership Berkeley University. Master in Information Technology m Massachusetts Institute of Technology (MIT). Taxpayer ID: 15,307,846-7 Universidad Federico Santa María Taxpayer ID: 25,553,336-3 Since 02.29.2016 Taxpayer ID: 10,761,436-2 Since 10.01.2016 Since 01.30.2018
5. GENERAL COUNSEL AND SECRETARY TO 9. INSTITUTIONAL AFFAIRS OFFICER 14. SERVICES THE BOARD Pedro Urzúa Frei Interim: Nicola Cotugno Domingo Valdés Prieto Journalist Lawyer Universidad de Artes y Ciencias de la Comunicación Universidad de Chile Taxpayer ID: 11,625,161-2 Master of Law Since 02.29.2016 University of Chicago Taxpayer ID: 6,973,465-0 Since 02.29.2016
Management 41 Senior Executive and Incentive Plans Manager Compensation for Managers and Senior Executives During 2017, the compensation and benefits received by the chief executive officer and senior executives of the Enel Chile has an annual bonus plan for its executives Company amounted to a fixed compensation of Ch$ 2,959 based on achieving objectives and the level of individual million and Ch$ 341 million in variable compensation and contribution to the company’s results. This plan defines a benefits. bonus range for each management or hierarchical level. Executive bonuses are expressed as a specific number of This amount included managers and senior executives that monthly gross salaries. held their position in the Company at year-end and also those who left the company during the respective year.
Severance payments Benefits for Senior The company made severance payments for years of ser- Executives and Managers vice to senior executives and managers that left the com- pany amounting to Ch$ 377 million in 2017. The company maintains complementary health insurance and catastrophic insurance coverage for senior executives and their accredited dependents. The company also has life insurance coverage for each senior executive. These bene- fits are granted according to the management level of each Shareholdings in employee at the time executed. Enel Chile
In 2017, the amount spent on these benefits was Ch$ 30 Based on the shareholder’s register, as of December 31, million, which is included in the compensation received by 2017, no senior executive owned shares of the Company. senior executives.
There are no requirements regarding the ownership of company shares by the CEO or senior executives. What is mandatory by the Securities Market Law and the Manual of Information of Interest to the Market, is that the CEO and senior executives inform their share position and the respective transactions.
42 Annual Report Enel Chile 2017 Management of main subsidiaries
Enel Generación Chile Valter Moro Mechanical Engineer Universidad Politécnica de Marche Italia
Enel Distribución Chile Andreas Gebhardt Strobel Hydraulic Engineer Pontificia Universidad Católica de Chile
Management 43 08 Human Resources
44 Annual Report Enel Chile 2017 Letter from the Chairman 45 Years of Service ENEL CHILE Workforce Less than 3 years 9 Between 3 and 6 years 2 More than 6 and less than 9 years - The employees per category of Enel Chile and its subsidiar- Between 9 and 12 years - ies and jointly controlled entities as of December 31, 2017 More than 12 years 9 Total 20 are the following:
Diversity in the organization Manage- Profes- Gender ENEL CHILE ment and sionals Employ- Senior and techni- ees and Female 170 Company Executives cians others Total Male 241 Enel Chile (1) 20 370 41 431 Total 411 Enel Generación (2) 13 806 29 848 Enel Distribución (3) 8 616 45 669 Nationality ENEL CHILE Total 41 1,792 115 1,948 Argentine 4 Brazilian 4 (1) Includes Servicios Infromáticos e Inmobiliarios Ltda. (absorbed on Chilean 390 September 1, 2017) Colombian 8 (2) Includes Pehuenche, GasAtacama Chile and GasAtacama Costa Rican 1 Argentina (3) Includes Empresa Eléctrica de Colina and Luz Andes Italian 1 Panamanian 1 Rumanian 1 Venezuelan 1 Total 411
Diversity Age ENEL CHILE Less than 30 years 10 Diversity of the Chief Executive Office and other Depart- Between 30 and 40 years 164 ments that report to CEO or Board of Directors Between 41 and 50 years 145 Between 51 and 60 years 87 Between 61 and 70 years 5 Gender ENEL CHILE Total 411 Female 3 Male 17 Total 20 Years of Service ENEL CHILE Less than 3 years 53 Between 3 and 6 years 59 Nationality ENEL CHILE More than 6 and less than 9 years 44 Chilean 12 Between 9 and 12 years 69 Spanish 1 More than 12 years 186 Italian 7 Total 411 Total 20
Age ENEL CHILE Average fixed salary of women compared to men within Less than 30 years - the same professional category Between 30 and 40 years 5 Between 41 and 50 years 8 Categories Between 51 and 60 years 7 Senior Management % 75% Between 61 and 70 years - Professional-Level 1 % 86% Total 20 Professional-Level 2 % 98% Professional-Level 3 % 76% Administrative-Level 1 % 93% Administrative-Level 2 % 97% Administrative-Level 3 % 123%
46 Annual Report Enel Chile 2017 >> May: Anti-tobacco campaign offering advice to prevent Human tobacco consumption. >> June: Cervix and prostate cancer encouraging the annu- al preventive exam. resources >> July: Respiratory disease and viral infections prevention campaign. activities >> August: Heart care campaign. >> September: Gastric and colon cancer campaign encour- aging preventive exams for timely detection of these diseases. Labor relations >> October: Breast cancer prevention campaign. >> November: ”Boost your energy” campaign recommend- ing practical nutrition habits to improve the quality of life. The program of periodic meetings with the Unions con- >> December: “Year-round skincare” campaign. tinued in 2017, strengthening dialogue with the represen- tatives of the workers and improve work conditions and climate. Activities for Enel Chile Group employees Safety measures and occupational health Immunization Program
In Enel Chile, safety and occupational health are goals The immunization of all Enel Chile employees is a preven- closely linked to the business. Given the nature of the busi- tive measure that focuses on all employees to prevent re- ness, it is exposed to critical risks. Leadership in safety current contagious illnesses. integration and occupational health is particularly important throughout the continuous improvement process at every The vaccine of the Seasonal Trivalent Influenza: Performed level and any activity developed by the company. Its pri- during the first quarter to prevent the outbreak that begins ority is key in corporate management due to its strategic In June. importance. Preventive medical exams Health dissemination and program promotion The objective is to perform periodic medical evaluations for This program aims to educate and train workers about the early detection of potential Illnesses. This Initiative fo- activities that promote quality of life through massive dis- cuses on all employees of the company and Is carried out semination efforts, such as posters, graphic material and following a protocol defined according to gender and age. emailed information titled “Advice that gives life.” Among each month’s topics are:
>> March: Anti-stress campaign offering practical recom- mendations to eliminate its causes. >> April: Immunization campaign to prevent the seasonal flu.
Human Resources 47 of others. It is an integral coaching program, which builds Cardiovascular risk pro- an individual itinerary for each manager, including skill train- gram ing workshops, individual coaching, guided meetings, and building a network of good practices in human resource The objective is to care for employees with cardiovascular management. risks, based on the results of preventive exams, through specific fitness programs and nutritional evaluation con- Enel Chile has implemented a set of communication initia- trols. tives under the name “RHO With You” to guarantee con- stant communication with workers on different matters of interest related to human resource management. Activities Workplace gymnastics pro- include a weekly radio show, a website, a manual of good gram practices, and monthly bulletins for managers and work- ers, among others. The workplace gymnastics program is an innovative ex- Additionally, we have also continued with the Human Re- ercise program that contributes to prevent workplace ill- sources initiative “Interact”, which involves holding meet- nesses, such as, stress, tendinitis, lumbago, carpal tunnel ings that make human resources permanently present in syndrome, neck and extremity pain. the agenda. These meetings are focused on employees interacting with Human Resources to learn about the Com- pany’s employee policies and good practices, and for the Company to learn about the developing needs of employ- ees. Workplace climate The program “Areas are Presented” was implemented management during 2017, in which employees deepen the roles, func- tions and challenges in the different areas of the company. The importance of this program lies in promoting a col- Work climate is a priority for Enel Chile. Therefore, a work- laborative culture among separate areas of the company, place climate and safety survey is performed twice a year, transforming, guiding and projecting different teams into with widespread employee participation. An action plan is a culture based on the question: “¿How can I help you?” drawn from the results of this survey to strengthen and enrich the company’s work environment. Work climate Additionally, several programs aim towards meritocracy management and commitment are fundamental pillars of and development. Professional development is managed the company’s strategy, due to their close relationship with by offering promotions based on merit, and job opportuni- the people that make up the company’s human resource. ties both locally and abroad, wherever the Group is pres- ent. During 2017, we have continued with initiatives that main- tain workers’ motivation, satisfaction and commitment Another initiative that has been maintained is the “One on regarding leadership, communication, meritocracy and de- One”. It is a personalized conversation program that allows velopment, conflict resolution measures, and good work learning about employees’ motivations and aspirations, practices. strengthening our relationship with our internal clients. Regarding leadership, Enel Chile has a program that aims to promote and reinforce the important role of managers in In Enel Chile, feedback occasions between managers and creating organizational environments that foster workers’ employees are opportunities to create closer bonds, in- satisfaction and development. “Leaving Traces” is a pro- crease transparency, align expectations, and support em- gram that was designed to encourage leadership and the ployees’ professional development. Fostering a culture of role of the manager in our “Open Power” culture, from a constant feedback develops our employees’ talents and strategic and active standpoint that focuses on the mobili- leads the way towards the formation of high performing zation of teams and the ability to help the learning process teams.
48 Annual Report Enel Chile 2017 During 2017 we have renewed the program “Recognizing The Policy has established three main principles: Ourselves”, which seeks to encourage a culture of recogni- tion within the Company. On the one hand, the “Recogniz- 1. Reject any and all forms of arbitrary discrimination and ing People Program” generates formal occasions in which ensure and promote diversity, inclusion, and equal op- workers can recognize their teammates, and on the other portunities. hand, the “Recognizing Contributions Program” in which the organization identifies initiatives that have added great 2. Promote and maintain an environment of respect for value to the company. Additionally, the company carries out people’s dignity, honor and identity. ceremonies to recognize workers and their professional ca- reer path, among other things. 3. Ensure the highest confidentiality standards regard- ing any information about worker’s private life that the In terms of work-life integration measures and best prac- Company could have access to. tices, smart work spaces have been implemented to strengthen teamwork, foster knowledge exchange rela- In terms of gender, a balance is sought out in the initial tionships, collaboration, and integration. These work spac- phase of the recruitment and selection processes and a es stimulate the use of technology and time efficiency in relationship with universities and professional institutes an informal and creative environment. is established to promote the participation and inclusion of women. Regarding Enel Chile´s new challenges, it is necessary to lead a culture of permanent change within the organization. Moreover, twenty-two women have participated in the Par- Along this line, throughout 2017 we created the program enting Program, which seeks to increase the value of ma- “Agent of Change”, with a team of approximately 50 em- ternity and balance out the needs of parenting with profes- ployees. This team has developed cultural change initia- sional development needs. Actions taken by the program tives that facilitate the implementation of projects. Each include activities for women’s healthcare and wellbeing, team has a company manager as a sponsor, who supports speeches regarding the impact a child may have on fam- and directs their initiatives, linking the technical project to ily dynamics, and the creation of trust between pregnant the cultural change initiatives that the implementation in- workers and the Company. volves. In terms of age, there are several tutoring programs that support employees during important transition periods (such as, external recruitment, personnel close to retire- Diversity ment, Millennial Youths and Zeta Generation Youths).
Regarding nationality, expatriates are assigned a tutor to As part of the Company’s strategy and Diversity and In- assist and support them throughout the length of their stay clusion Policy, Enel Chile has developed several practices in order to recognize, respect, and manage the cultural dif- addressing gender, age, nationality, and disability. This pol- ferences between different nationalities and stimulate their icy promotes the principles of non-discrimination, equal op- integration. portunities, inclusion and work-life balance as fundamental values in the activities performed by the companies of the Regarding disabilities, this year a shared value agreement Group. was signed with the Teletón Foundation, through which the participation of young disabled people will be promoted. Additionally, an e-learning course about consciousness and workplace inclusion was co-developed with this same foundation.
Human Resources 49 summer for family members of employees, and the Uni- versidad de Chile Summer School, an initiative destined to Work-Life integration improve the academic level of employees’ high schoolers., Every year the Academic Excellence award is granted to measures and flexibility employees’ children with high academic performance in grade school. With regard to conciliation and flexibility, we began a new form of telecommuting during 2017, evolving from the Tele- This year, several events were held to foster the bal- work Program that began in 2012. “Smart Working” has ance between work and family life. The Christmas Party consolidated one of the most appreciated conciliation mea- is among the most relevant of these events designed for sures within the company, providing employees with great- workers with children born after the year 2004 and also the er flexibility when it comes to the execution of their work. “Come to my birthday party” celebration held monthly in Today, we have 256 workers in the program, of which 102 the corporate stadium for kids age 12 and under. choose one day a week to work from home or wherever they please, but must comply with the safety and health Other important events are the End of the Year party, a cor- measures established by current legislation. This initiative porate event for all employees consisting of a dinner with contributes to workers’ quality of life, and the balance be- contests and dancing, and the “Career Trajectory Award”, tween work and family life. an annual corporate celebration that recognizes workers who have been with the company for at least 20 years. Additionally, the following other initiatives were carried out to improve worker’s quality of life:
Sport and Culture Extension Program: traditional sports program performed within the company’s facilities and in Filling job openings third party facilities, offering workshops and the practice of several sports, such as soccer, baby soccer, basketball, For Enel Chile, the main goal is to incorporate the best pro- volleyball, and others, as well as sports classes for employ- fessionals, those who have the competences needed to ees’ children in soccer, tennis and figure skating. Other face the cultural change that comes with the company’s extension activities designed for employees and their fam- digital transformation. ilies include artistic workshops, expositions, family excur- sions and trips, among others. During 2017, a total of 20 positions opened, 55% were filled with internal candidates. In turn, 54.5% of these were as- There are several activities for employees’ children, both signed to women who either won the internal contests or recreational and educational. These include the summer were re-assigned directly. Additionally, out of the external and winter camps for youths between 6 and 15 years of workers that entered the company in 2017 (45% of the to- age that are offered in January and during winter holidays tal available positions in the company), 77% correspond to in July. There are also training workshops held during the external processes won by women.
50 Annual Report Enel Chile 2017 This internship program is carried out permanently through- out the year, although the greatest number of interns are Internships and young received during the summer. During 2017, a total of 55 in- talent program terns were part of this Enel Chile program.
To generate bonds with universities and attract the greatest This project is worthy of being mentioned because it rep- number of students, during 2017 Enel Chile participated in resents a new recruitment method that offers candidates Job Fairs held in the School of Physical Sciences and Math- that have experienced our organizational culture. It involves ematics of Universidad de Chile, and in the Engineering incorporating young professionals from the best universi- School of Universidad Católica de Chile. Our stand received ties in the country as interns. They are given the opportu- students studying industrial engineering, electric engineer- nity to consolidate their theoretical knowledge in the Enel ing, mechanical engineering and hydraulic engineering. Chile business, shaping professionals who are familiar with the Group’s reality and challenges.
Human Resources 51 To encourage diversity in all its forms, we highlight the in- creasing participation of women in internal contests, grad- Diversity and inclusion ually promoting women’s empowerment and leadership. It is worthy of noting that out of the total external admissions, 77% were women. For Enel Chile, diverse work teams and an inclusive work environment is essential to create a culture of innovation. Di- This year we have implemented the On-Boarding program, versity grants the possibility of visualizing different points of in which each worker that enters Enel Chile must be accom- view and opinions that enrich the work environment, adding panied by a tutor who offers professional and personal sup- value to the business. port, guiding in the day to day dynamics of the company, and helping to create networks that will allow feeling welcomed In our company we value differences and transform them and in a trustworthy environment. This program helps the into our competitive advantage; by stimulating creativity, rapid adaptation into the company´s culture and also offers flexibility, learning and respect we are able to improve our the Company exposure to any suggestions made by new processes. This also strengthens our position as employers employees. when searching for talent in the market.
52 Annual Report Enel Chile 2017 Educational action
Training
The Company’s training program for 2017 was based on two main pillars: The first is to achieve the balance between training activities focused on developing competences and those focused on the technical knowledge to improve job performance. The second is to define the training program based on a mechanism that allows, the employee and the manager, together, to detect the technical and behavioral gaps the employee needs to close, regarding individual job productivity, and also to have access to potential future de- velopment opportunities. The mechanism is entitled Profes- In terms of developing new behavioral and management sional Development Itinerary (IDP In its Spanish acronym) abilities, several programs were implemented during 2017. and has a two-year implementation period. Among these, we highlight the activities related to the de- velopment of leadership skills, particularly the program for In general terms, Enel Chile’s training activities during 2017 every manager to identify his/her leadership gap and create reached 89% coverage, which means that 379 employees a specific plan according to his/her individual needs. During participated in at least one training activity during the year. 2017, 22 managers participated in this program. The total number of training hours reached 20,596, resulting in a 1.9 % training rate (training hours for every 100 hours The training activities included e-learning courses about the worked). Company’s Criminal Risk Prevention Model for workers. This training program was extended to the directors of Enel Chile Technical training, which is critical due to the importance of and its subsidiaries in 2017. updating technical knowledge and acquiring new manage- ment tools, reached 46% of total training hours. Within the Finally, and as it has been declared to everyone, in very lev- technical training activities carried out, we highlight those el and segment within the company, risk prevention, health related to knowledge management- that is, the implemen- and the general safety of every person is particularly rele- tation of activities in which there is a transmission of knowl- vant and has he Company’s permanent attention. edge and experience from workers who have a greater ex- pertise in specific subjects towards others who are learning. This reaffirms our commitment to employee development, recognition and dissemination of knowledge within the company.
Human Resources 53 09 Stock Market Transactions
54 Annual Report Enel Chile 2017 Letter from the Chairman 55 Quarterly transactions of Enel Chile shares in Chile during the year, on the Santiago Stock Exchange, the Electronic Stock Exchange and the Valparaíso Stoc k Exchange, as well as in the United States of America on the New York Stock Exchange (NYSE) are detailed below. Santiago Stock Exchange
During 2017, a total 8,869 million shares were traded on the Santiago Stock Exchange equivalent to Ch$633,113 million. The closing price of the stock at year end December 2017 was Ch$ 72.81.
Month Units traded Amount (Ch$) Average price (Ch$) 2017 January 677,370,600 43,674,147,600 64.48 February 502,037,453 32,191,453,680 64.12 March 838,077,569 58,407,417,109 69.75 1st Quarter 2,017,485,622 134,273,018,389 66.55 April 641,050,942 46,728,903,353 72.89 May 577,423,483 43,119,722,121 74.68 June 549,859,075 40,663,203,684 74.00 2nd Quarter 1,768,333,500 130,511,829,158 73.80 July 740,035,245 54,290,664,739 73.36 August 833,920,099 59,630,406,679 71.51 September 724,768,134 54,224,208,809 74.83 3rd Quarter 2,298,723,478 168,145,280,227 73.15 October 697,938,952 53,047,610,528 76.00 November 879,691,338 62,778,443,019 71.36 December 1,206,498,260 84,356,820,551 69.92 4th Quarter 2,784,128,550 200,182,874,098 71.90 Total 2017 8,868,671,150 633,113,001,872 71.39 2016 1st Quarter No transactions 2nd Quarter 1,998,658,925 157,879,907,720 79.92 3rd Quarter 1,926,875,561 141,425,350,170 73.04 4th Quarter 1,706,851,142 109,800,337,389 64.28 Total 2016 5,632,385,628 409,105,595,279
56 Annual Report Enel Chile 2017 Chilean Electronic Exchange During the year a total 675 million shares were traded on the Electronic Stock Exchange, amounting to Ch$ 48,145 million. The closing price of the stock at year end was Ch$ 70.5.
Month Units traded Amount (Ch$) Average price (Ch$) 2017 January 45,242,313 2,912,707,430 64.07 February 50,342,500 3,252,115,802 64.44 March 119,745,474 8,332,539,564 69.15 1st Quarter 215,330,287 14,497,362,796 67.33 April 44,107,916 3,216,128,742 73.22 May 66,103,278 4,954,427,839 74.72 June 31,387,014 2,326,028,301 74.30 2nd Quarter 141,598,208 10,496,584,882 74.13 July 11,785,776 872,575,405 74.04 August 90,533,747 6,416,807,980 71.07 September 29,406,917 2,204,845,890 74.66 3rd Quarter 131,726,440 9,494,229,275 72.08 October 74,128,543 5,679,073,870 76.92 November 49,680,000 3,561,604,565 71.83 December 62,347,792 4,416,112,743 69.81 4th Quarter 186,156,335 13,656,791,178 73.36 Total 2017 674,811,270 48,144,968,131 2016 1st Quarter No transactions 2nd Quarter 194,419,919 15,318,223,758 80.25 3rd Quarter 244,564,668 18,185,923,824 74.00 4th Quarter 196,586,979 12,673,446,594 64.96 Total 2016 635,571,566 46,177,594,176
Valparaiso Stock Exchange
During 2017, a total 47 thousand shares were traded on the Valparaiso Stock Exchange, amounting to Ch$ 3.4 million. The closing price of the stock at year end was Ch$ 71.8.
Month Units traded Amount (Ch$) Average price (Ch$) 2017 January No transactions February 776 51,038 65.7777 March No transactions 1st Quarter 776 51,038 65.77 April No transactions May No transactions June No transactions 2nd Quarter No transactions July No transactions August No transactions September No transactions 3rd Quarter No transactions October 5,885 441,375 75.00 November No transactions December 40,334 2,899,583 70.99 4th Quarter 46,219 3,340,958 72.29 Total 2017 46,995 3,391,996 2016 1st Quarter No transactions 2nd Quarter 14,000 1,102,500 79.00 3rd Quarter 120,460 8,530,418 70.53 4th Quarter No transactions Total 2016 134,460 9,632,918
Stock Markets Transactions 57 New York Stock Exchange (NYSE)
Enel Chile shares began trading on the New York Stock Exchange (NYSE) on April 27, 2016. One ADS (American Deposi- tory Share) of Enel Chile represents 50 shares and the ticker is ENIC. Citibank N.A. acts as a depositary bank and Banco Santander Chile as the custodian in Chile. During 2017, 72 million ADSs were traded in the United States amounting to US$396 million. The ADS closing price at year end was US$5.68.
Month Units traded Amount (Ch$) Average price (Ch$) 2017 January 6,419,009 31,631,768 4.93 February 4,571,747 22,814,460 4.99 March 6,857,621 35,317,851 5.15 1st Quarter 17,848,377 89,764,079 5.03 April 5,795,630 32,088,831 5.54 May 4,856,897 26,725,069 5.50 June 11,101,583 61,663,527 5.55 2nd Quarter 21,754,110 120,477,427 5.54 July 6,145,736 34,462,262 5.61 August 4,570,744 25,744,446 5.63 September 4,064,306 24,031,666 5.91 3rd Quarter 14,780,786 84,238,374 5.70 October 4,124,731 24,914,782 6.04 November 5,211,790 29,020,584 5.57 December 8,752,627 47,134,231 5.39 4th Quarter 18,089,148 101,069,596 5.59 2016 1st Quarter No transactions 2nd Quarter 29,710,261 170,930,979 5.90 3rd Quarter 35,620,749 197,716,330 5.45 4th Quarter 18,802,549 90,538,625 4.79 Total 2016 84,133,559 459,185,933
With regard to Chile, the Selective Stock Price Index, IPSA Market (in its Spanish acronym), which groups the 40 main shares in the country regarding transaction volume, closed at 5,564.6 points equivalent to a 34.0% increase when com- information pared to the year before.
The perspective of the global economic scenario in 2017 Capital has continued flowing to emerging markets and the has been showing improvements. In general, developed prices of several risk assets are high. The prices of com- economies and several emerging markets have reached modities have also performed better than expected. higher growth rates than previous years. Additionally, glob- al financial conditions have been favorable, to a certain ex- The main external risks continue to be linked to the mone- tent, due to the cautious and austere management of the tary policy of the developed world and the fiscal policy of main international economies, which has contributed to the United States of America, and its impact on the global maintain reasonably low interest rates. economy and financial conditions, in addition to the geopo-
58 Annual Report Enel Chile 2017 litical risks mainly from China and Latin America. Notwith- standing the aforementioned, since the beginning of the year, currencies have been appreciating with respect to the Santiago Stock Exchange US Dollar and the ten-year nominal rate of several econo- mies has fallen, with the exception of China and India. The following table shows the changes in the price of the share of Enel Chile and the Selective Stock Price Index During 2017, the price of Enel Chile stock increased 17.4%, (IPSA) on the local stock market over the past two years: which may be explained by the expectations regarding the Elqui operation combined with a moderate impact of the 04-21-2016 - Accumulated lower long-term price level expectation for the electricity Variation 12-31-2016 2017 2016 - 2017 (1) industry. ENELCHILE -29.6% 17.4% -17.4% IPSA 4.1% 34.0% 39.6% The accumulated stock price variation in 2016 and 2017, (*) The shares of Enel Chile began trading on April 21, 2016. was a 17% reduction (April 21, 2016, through December 30, 2017). The IPSA, measured the same way, increased 39.6% during the same period. This is significantly ex- plained, once again, by the negative perspectives for the industry as a consequence of the dry hydrology, the price New York Stock of the latest electricity tenders combined with a low in- crease in electricity demand over las last few years. Exchange (NYSE)
Despite the devaluation of the Chilean Peso with respect The following table shows the behavior of Enel Chile’s to the US dollar, the price of the ADR´s of Enel Chile in- ADRs listed on the NYSE (ENIC), compared to the Dow creased 25% in the New York Stock Exchange during 2017, Jones Industrial index and the Dow Jones Utilities index and the accumulated variation between 2016 and 2017 was over the past two years: -8%. 04-21-2016 - Accumulated Variation 12-31-2016 2017 2016 - 2017 (1) ENIC -26.4% 24.8% -8.1% Down Jones Industrial 9.5% 25.1% 37.0% Down Jones Utilities 1.0% 9.7% 10.7%
1.The shares of Enel Chile began trading on April 27, 2016.
In accordance to General Norm 283, Numeral 5, the Com- pany’s 2018 and 2017 dividends policies are transcribed below.
Stock Markets Transactions 59 10 Dividends
60 Annual Report Enel Chile 2017 Letter from the Chairman 61 Dividend Dividend payment Policy 2018 procedure
The payment of dividends, whether interim or final and to avoid payment mistakes, Enel Chile offers the following General aspects payment methods:
The Board of Directors of the Company, in the session held 1. Deposit in a bank checking account, whose ac- on February 27, 2018, approved the following Dividend Pol- count-holder is the shareholder. icy and the corresponding procedure for the dividend pay- ments of Enel Chile S.A. for 2018. 2. Deposit in a bank savings account, whose ac- count-holder is the shareholder.
3. Mailing of a check or cashier’s check via certified mail Dividend policy to the address of the shareholder’s residence record- ed in Enel Chile’s Shareholder Register.
The Board of Directors intends to distribute an interim div- 4. The collection of a check or cashier’s check from the idend for fiscal year 2018 of up to 15% of net income as offices of DCV Registros S.A., as the registrar of Enel of September 30, 2018, as recorded in the consolidated Chile’s shares, or from the bank and branches defined financial statements of Enel Chile S.A. at that date, to be for this purpose and informed in the dividend payment paid in January 2018. notice published.
The Board of Directors will propose to the Ordinary Share- For this purpose, bank checking or savings accounts may holders’ Meeting, to be held during the first four months be located anywhere in the country. of 2019, to distribute a final dividend equivalent to 60% of net income for fiscal year 2018. The final dividend will be It should be emphasized that the payment method cho- defined by the Ordinary Shareholders Meeting to be held sen by each shareholder will be used by the centralized during the first four months of 2019. securities’ depository, DCV Registros S.A., for all dividend payments unless the shareholder communicates in writing Compliance with the aforementioned dividend plan is sub- the intention to change it and record a new option. ject to the actual net profit earned by the Company during the year, and to the results of the Company’s periodic in- Shareholders who have not registered a payment method come projections or the existence of certain conditions, as will be paid by method four indicated above. applicable.
62 Annual Report Enel Chile 2017 If checks or cashier’s checks are returned by the post office to DCV Registros S.A., they will remain in custody until Dividend collected or requested by the shareholder.
In the case of deposits in bank checking accounts, Enel Policy 2017 Chile S.A. or DCV Registros S.A. may request, for securi- ty reasons that they be verified by the respective bank. If The Board of Directors’ intends is to distribute an interim there is an objection to the account indicated by a share- dividend for the fiscal year 2017, of up to 15% of net in- holder, whether in the prior verification process or for any come as of September 30, 2017, as shown in the financial other reason, the dividend will be paid according to meth- statements of Enel Chile S.A. at that date, and payable in od No 4 indicated above. January 2018.
Moreover, the company has adopted and will continue to The Board of Directors intends to propose to the Ordinary adopt all the necessary security measures required by the Shareholders’ Meeting. to be held during the first four dividend payment process to safeguard the interests of the months of 2017, to distribute a final dividend equivalent to shareholders and Enel Chile S.A. 55% of the fiscal year 2017 net income. The final dividend will be determined by the Regular Shareholders’ Meeting to be held during the first four months of 2018.
Compliance with the aforementioned dividend plan is sub- ject to the actual net profit earned by the Company during the year, and to the results of the Company’s periodic in- come projections or the existence of certain conditions, as applicable.
Dividendos 63 Enel Chile S.A. dividend payment procedure: The pay- Shareholders who have not registered a payment method ment of dividends, whether interim or final and to avoid will be paid by method 4 indicated above. payment mistakes, Enel Chile offers the following payment methods: 1. Deposit in a bank checking account, whose If checks or cashier’s checks are returned by the post office account-holder is the shareholder; 2. Deposit in a bank to DCV Registros S.A., they will remain in its custody until savings account, whose account-holder is the shareholder; collected or requested by the shareholder. 3. Mailing of a check or cashier’s check via certified mail to the address of the shareholder’s residence recorded in In the case of deposits in bank checking accounts. Enel Enel Chile’s shareholder register; and 4. The collection of a Chile S.A. or DCV Registros S.A. may request, for security check or cashier’s check from the offices of DCV Registros reasons, that they be verified by the respective bank. If S.A., as the registrar of Enel Chile’s shares, or from the there is an objection to the account indicated by a share- bank and branches defined for this purpose and informed holder, whether in the prior verification process or for any in the dividend payment notice published. other reason, the dividend will be paid according to meth- od No 4 indicated above. For this purpose, bank checking or savings accounts may be located anywhere in the country. Moreover, the company has adopted and will continue to adopt all the necessary security measures required by the It should be emphasized that the payment method chosen dividend payment process to safeguard the interests of the by each shareholder will be used by the centralized depos- shareholders and Enel Chile S.A. itory of securities, DCV Registros S.A. for all dividend pay- ments unless the shareholder communicates in writing the intention to change it and record a new option.
64 Annual Report Enel Chile 2017 Distributable net income Dividends distributed for fiscal year 2017 The following chart shows the dividends per share paid over the past few years: The distributable net income for fiscal year 2017 is shown below: Dividend Type of Closing Payment Pesos No Dividend date date per share Fiscal year 1 Final 12-31-2015 05-24-2016 2.09338 2015 Millions of Ch$ 2 Interim 09-30-2016 01-27-2017 0.75884 2016 Net Income * 349,383 3 Final 12-31-2016 05-26-2017 2.47546 2016 Distributable Net Income 349,383 4 Interim 09-30-2017 01-26-2018 0.75642 2017 * Attributable to controlling shareholder
Dividendos 65 11 Investment and financing policy
66 Annual Report Enel Chile 2017 Letter from the Chairman 67 The Ordinary Shareholders’ Meeting held on April 26, 2017, approved the Investment and Financing Policy described below.
Investment Policy 2017
Areas of investment Participation in the control of investment areas I. Enel Chile will invest, according to its bylaws, in the following: to invest in or to create subsidiaries and Pursuant to Enel Chile S.A. corporate purpose, the follow- affiliate companies whose activity is aligned, related ing procedure will be applied, when possible, to control the or linked to energy in any form or type, the supply of investment areas: public utilities, or whose main input is energy;
i. The appointment of the number of directors to at least II. Investments related to the acquisition, exploitation, represent the ownership share of Enel Chile S.A.’s construction, lease, administration, trading and dis- stake in subsidiaries and affiliated companies will be posal of any class of fixed assets, whether directly or proposed at the Ordinary Shareholders’ Meetings of through subsidiaries; each respective subsidiary and affiliate company. The directors proposed will be chosen preferably from III. Other investments in all kinds of financial assets, fi- among directors or executives of Enel Chile or its sub- nancial papers or securities. sidiaries.
ii. The investment, financial and commercial policies, as well as the accounting criteria and systems, will be Maximum proposed to the subsidiaries and affiliate companies. investment limits iii. The management of the subsidiaries and related com- panies will be supervised. The maximum investment limits for each investment area are the following: iv. The level of debt will be a permanently controlled.
I. Investments in the subsidiaries that operate in the electricity sector, those required for the fulfillment of the respective corporate purpose of these subsidiar- ies, limited to a maximum equivalent to 50% of total equity according to the consolidated balance sheet of Enel Chile as of December 31, 2016;
II. Investments in other subsidiaries, insofar at least 50.1% of total Consolidated Assets of Enel Chile are electricity sector assets.
68 Annual Report Enel Chile 2017 Financing policy 2017
Maximum level of debt Management powers to Enel Chile’s maximum level of debt is determined by a Total Financial Debt (calculated as other current financial liabili- agree with lenders on ties plus other noncurrent financial liabilities) to Equity ratio granting guarantees equal to or lower than 2.20 times based on the figures in the consolidated balance sheet of Enel Chile as of Decem- The Extraordinary Shareholders’ Meeting is required to ap- ber 31, 2016; prove granting hard assets or personal guarantees to se- cure third party obligations when referring to the essential assets identified below; Management powers to agree with lenders restrictions related to Essential Assets for dividend distributions company operations
The shares that enable maintaining control of Enel Gener- Dividend restrictions may only be agreed with creditors if ación Chile and Enel Distribución Chile, either for owning such restrictions were previously approved by the Share- the majority shareholding or through a shareholders’ agree- holders’ Meeting (ordinary or extraordinary); ment, are essential assets to the operations of Enel Chile.
Investment and financing policy 69 12 History of the Company
70 Annual Report Enel Chile 2017 Letter from the Chairman 71 er” in which Enersis Américas absorbed the businesses History of the of Endesa Américas and Chilectra Américas. During the same meeting, shareholders agreed to change the name Company of Enersis Américas S.A to Enel Américas S.A. On October 4, 2016, the shareholders of Enersis Chile, Enel Chile S.A. was created as part of the corporate reor- Endesa Chile and Chilectra agreed to change their names ganization process of Enersis S.A that began in April 2015. to Enel Chile, Enel Generación Chile and Enel Distribución Enersis S.A. controlled the generation, transmission and Chile respectively. distribution business in Chile and four other countries in the region (Argentina, Brazil, Colombia, and Peru). The Ex- Now that the organizational simplification process of the traordinary Shareholders’ Meeting of Enersis S.A. held in Group has concluded, Enel Chile participates in the elec- December 2015 approved the first phase of the reorgani- tricity generation business through its subsidiary Enel Gen- zation plan entitled “the Division”, which created Enersis eración Chile. This subsidiary has 103 generation units in- Chile as the only vehicle to control the Group’s generation stalled throughout the Central Interconnected System (SIC and distribution assets in Chile. Enersis S.A became Ener- in its Spanish acronym) and eight units in the Northern In- sis Americas S.A., the vehicle to control all assets of the terconnected System (SING in its Spanish acronym) reach- businesses in other countries in the region. ing a total aggregate installed capacity of over 6,300 MW, placing it among the most important energy companies in Endesa Chile S.A. and Chilectra S.A. went through a similar the country. division process. Enel Chile participates in the distribution business through On September 28, 2016 the Shareholder’s Meeting of En- the subsidiary Enel Distribución Chile that operates a con- ersis Américas, Endesa Américas, and Chilectra Américas cessions area of more than 2,000 square kilometers, cov- approved the second phase of the plan called “the Merg- ering 33 districts in the Metropolitan Region, representing
72 Annual Report Enel Chile 2017 40% of total sales of distribution companies in the country, In February 2017, Enel Generación Chile sold its sharehold- making Enel Chile the largest electricity distribution com- ing in Electrogas S.A. to Aerio Chile S.p.A. for US$180 mil- pany in Chile. lion as part of the plan to divest non-strategic assets.
The Company has also grown by adding new applications In August 2017, a corporate reorganization of Enel Chile to electricity and developing new ways to manage elec- was proposed. This plan involved the merger of Enel Green tricity. Enel Chile was the first company in the country to Power Latin America with and into Enel Chile and launching offer its customers intelligent metering technology in 2016. a Public Tender Offer (PTO) for 100% of the shares of Enel Also, along with the Municipality of Santiago, the Compa- Generación Chile. ny has placed the first and only electric bus to operate in Santiago’s major avenues and completely free of charge to In December 2017, the respective Extraordinary Sharehold- passengers. Enel Chile seeks to promote the efficient use ers’ Meeting approved the terms of the reorganization to of energy supplied by Enel Distribución Chile to its almost take place during 2018. 2 million residential customers in Chile and collaborate with the environment. Enel Chile is part of the Enel Group, a global energy compa- In June 2016, Endesa Chile (Enel Generación Chile today) ny and one of the main integrated operators in the electric- sold its 20% share in GNL Quintero S.A. to Enagás Chile ity and natural gas sectors worldwide. It is present in more S.p.A for US$ 200 million. This decision to sell its share- than 30 countries and in four continents. It supplies energy holding in GNL Quintero was based on the fact that it did to nearly 61 million people and has net installed capacity of not represent a strategic asset for the development of the more than 86 GW. electricity business or the natural gas trading business of the Company.
History of the Company 73 13 Investments and financial activities
74 Annual Report Enel Chile 2017 Quintero thermal power plant
Letter from the Chairman 75 Relevant projects of the Company’s Investment Plan
The Group’s global financing strategy and intercompany loans, in addition to the terms and conditions of financ- Generation ing, are coordinated by Enel Chile to optimize debt man- agement. The subsidiaries generally develop their capital In Chile, the main investments developed during 2017 expenditure plans independently, financing them with in- focused on the construction of the Los Cóndores pass ternally generated funds or direct financing. One of the through hydroelectric power plant (150 MW) that began objectives is to focus on investments that will provide construction in 2014 and also the investments related to long-term social and economic benefits, such as, the envi- finishing the Bocamina II power plant (350 MW). ronmental and sustainability improvement projects of Bo- camina II. Other examples are projects that adjust medium and low voltage networks to connect new customers and also real estate projects. Relevant Investments The funds required to finance these investments have been analyzed and included in the Company’s budget, but in 2017, 2016 and 2015 no particular financing structure has been committed and the investments will depend on the market conditions at The capital investments carried out over the last three the time the cash flows are needed. years were mainly related to:
The investment policy of Enel Chile S.A. is flexible enough 1. The 350 MW Bocamina II power plant optimization to adapt to changing circumstances, prioritizing each proj- project ect based on profitability and strategic alignment. 2. The 150 MW Los Cóndores project From 2018 to 2020, Ch$ 768 billion is expected to be dis- bursed, on a consolidated basis, on investments currently 3. Maintenance of existing installed capacity under development, maintenance of our distribution net- work and existing installed capacity, and on studies re- The capital investments just mentioned and related to specific quired to develop other generation projects. projects were financed as follows:
The following table shows the expected capital expendi- >> Bocamina II: cash from the Company´s operations ture for the 2018– 2020 period and the amount incurred by >> Los Cóndores: cash from the Company´s operations and our subsidiaries in 2017, 2016 and 2015. also third-party debt.
Investment (1) (in billions of Ch$) 2018-2020 2017 (1) 2016 (1) 2015(1) Chile 768 266 157 310 Total 768 266 157 310
(1) The Capex figures represent actual disbursements each year, except for future projections (gross amounts)
76 Annual Report Enel Chile 2017 the Chena interconnection substation and Nueva Lampa facility. Projects currently Regarding service quality, Ch$11 billion were invested underway mainly in reinforcing certain feeders, those determined by our quality plan, which included the automation of the MV The most important projects currently in construction are: network involving the addition of 320 new remote-control devices to the medium voltage network and performing >> Optimization of Bocamina II Power Plant: Environmental the necessary network adjustments to condense, in one improvements (coal field roofing, biomass filters, among year, the activities that would normally take six years to others) and sustainability initiatives (relocation programs, implement. This allowed increasing from 1200 to 1500 re- agreements with fishermen, shared value funds, among mote devices being controlled from the Network Opera- others). tions Center. At the same time, the operation of field equip- ment was integrated to the SCADA Platform (“MV Remote >> Los Cóndores project: 150 MW hydroelectric power Control System”, STM, in its Spanish acronym), having all plant located in the Maule region. Its construction began medium voltage feeders digitalized in this new platform. in 2014. The operational capacity (coverage and availability) of the telecommunications infrastructure was reinforced by in- creasing the radio base of the DMR (Digital Mobile Radio) platform from 3 to 5 and updating the communications de- vices installed in the MV remote control equipment to 3G Distribution or radio DMR. The management and monitoring tools of the 3G (ATLAS) and DMR (Shiny Server) links were also During 2017, Enel Distribución Chile and its subsidiaries improved. (Colina and Luz Andes) invested Ch$91 billion in projects primarily related to satisfying natural demand growth, ser- Additionally, a total Ch$9 billion were invested in relocating vice quality. and safety and information systems. Further- public network infrastructure, of which the most relevant more, during 2016, a total Ch$81 billion were invested, were the freeway Autopista del Aconcagua and section 3 Ch$33 billion in maintenance and Ch$48 billion in invest- of Vicuña Mackenna avenue. ments to satisfy growth in demand. To comply with regulation, Ch$ 6 billion was invested in In 2017 a total Ch$18 billion were invested in Medium Volt- legal procedures to normalize lines and substations. age and Low Voltage networks allowing to connect new customers, both residential and large customers and also Investment in anti-theft projects to shield the network connect real estate projects. amounted to Ch$ 2 billion, including installing Ananda box- es to more than 7,500 customers. A total Ch$14 billion was invested on increasing Enel Dis- tribución Chile’s network capacity. Worth highlighting, the Nearly Ch$ 6 billion were used to finance corrective main- Alonso de Córdoba, Renca, La Cisterna and Club Hípico tenance of transmission lines, and substations. A series substations. The high voltage (HV) Santa Elena-Macul 110 of maintenance works also focused on high risk facilities. kV line was reinforced and four new medium voltage (MV) 12 kV lines of Enel Distribución began operations: Algar- Finally, one of the greatest achievements of the Compa- robal line to the Chicureo substation, Honduras feeder to ny in 2017 was the installation of 45,628 smart meters in the Los Dominicos substation, Dublé Almeyda feeder to Santiago representing a Ch$4 billion investment, reaching the Santa Elena substation and the Bellavista feeder to the a total 100,865 smart meters in operation in the 11 districts San Cristobal substation. Works were also developed at of Santiago.
Investments and Financial Activity 77 Financial Interest Rate The Enel Chile Group interest rate hedging policy seeks condition to maintain a balanced debt structure to minimize financial expenses and reduce income statement volatility. Hedging instruments are purchased based on market conditions, given the Company’s projections and debt structure objec- Liquidity tives.
At year-end 2017, consolidated fixed debt to total financial As of year-end 2017, the subsidiary Enel Generación Chile debt was 92%. relied on committed credit lines available for US$ 324 mil- lion and also undisbursed commercial credit lines for a maximum US$200 million. These were registered in the Securities Register of the Superintendence of Securities and Insurance (SVS in its Spanish acronym) in 2009 and expire in 2019. Risk Rating
The main events related to risk rating in 2017 are summa- rized below: Indebtedness Enel Chile was rated for the first time by Feller Rate on June 19, 2017. The Company was rated “AA” on the local The consolidated financial debt of Enel Chile reached US$ scale with a stable outlook. This rating was later confirmed 1,272 million, mainly international bonds and local bonds on July 8. with a 10-year average life.
Fitch Rating began assigning a credit rating to Enel Chile Net consolidated debt was US$ 590 million at year-end S.A. on April March 15, 2017. The local rating given to the 2017 and the leverage ratio was 0.5 times. Company was “AA” with a positive outlook.
Furthermore, on July 31, 2017, Standard & Poor’s gave Enel Chile S.A. a “BBB+” international credit rating with a sta- Hedging Policy ble outlook. This rating is an “investment grade” rating.
The Company’s ratings are based on its diversified asset Exchange rate portfolio, strong credit parameters, adequate debt struc- ture and high liquidity. The exchange rate hedging policy of the Enel Chile Group is based on cash flows and seeks to maintain a balance between flows indexed to foreign currency (US$) or local International rating currencies, and the levels of assets and liabilities denom- inated in such currency. The goal is to minimize cash flow Enel Chile S&P exposure to risk related to exchange rate variations. Corporate BBB+ / Stable
1 Calculated as Net Financial Debt over Gross Operating Income (EBITDA)
78 Annual Report Enel Chile 2017 Local rating Suppliers, Enel Chile Feller Rate Fitch Ratings Stocks 1° class. Level 2 1° class. Level 1 customers, Bonds AA / Stable AA / Stable and relevant Insurance competitors
Enel Chile S.A. is a Holding Company that operates primar- Enel Chile owns equipment and substations located in the ily in the electricity generation and distribution sectors in Metropolitan Region. These assets are covered by a global Chile, therefore the suppliers, customers, and competitors insurance program centralized by its parent company, Enel. are those relevant to the Company’s main subsidiaries that The insurance covers physical damages, terrorism, busi- operate in the electricity sector. ness interruption and legal liability. The insurance policies’ renewal process was carried out through an international Consequently, the relevant suppliers, customers, and com- bid, where the leading insurance companies worldwide petitors are the following: were invited to participate. The contracts were renewed on November 1, 2017 and expire October 31, 2018. CGE Group, SAEZA Group, Chilquinta Group, GNL Chile, Transelec, Ferrovial Agroman Chile S.A., CMC Coal Mar- keting Company Ltda., AES Gener, Colbún, Engie, Guacol- da Energía S.A., Pacific Hydro Chacayes, Hidroeléctrica la Trademark Higuera, Hidroeléctrica la Confluencia, Gerdau Aza S.A., Mall Plaza Group, Metro S.A., Cencosud Group, SCA Chile
The Company has registered the trademark “Enersis Chile” S.A. Pacific Hydro Chile, Ducati Energía SPA, Industrial y for services, products, industrial and commercial facilities. Comercial Guzmetal Ltda., Shenzhen Star Instrument Co. Ltda., Cearca S.A., Baterías Tubular S.A..
Enel S.p.A. has allowed Enel Chile S.A. to use the “Enel” trademark free of charge and allows using it in its legal name, logo and in other ways.
The trademark “Enel Chile” is registered legally.
Investments and Financial Activity 79 14 Risk factors
80 Annual Report Enel Chile 2017 Letter from the Chairman 81 The objective of interest rate risk management is to achieve Risk a debt structure balance that allows minimizing the cost of debt and maintain low income statement volatility. management The comparative financial debt structure of the Enel Chile Group, regarding fixed and hedged interest rate to total policy debt, net of derivatives, is the following:
12-31-2017 12-31-2016 All Enel Chile Group companies are exposed to certain Fixed Interest Rate 92% 92% risks that are managed through the application of systems of identification, measurement, limit of concentration and Depending on the Group’s estimates and debt structure supervision. objectives, hedging operations are performed by purchas- ing derivatives that mitigate these risks. The basic principles defined by Group in establishing its risk management policy include the following:
>> Comply with rules of good corporate governance. >> Comply strictly with the Group’s norms and procedures. Exchange rate risks >> Each business and corporate area defines:
Exchange rate risks are primarily related to the following I. The markets in which it can operate, based on having transactions: the sufficient knowledge and abilities to ensure effec- tive risk management >> Debt incurred by the Group’s companies in currencies II. Criteria on counterparties different from their respective operational cash flow cur- III. Authorized operators rency.
>> Each business and corporate area establish, for each >> Payments in currencies different from their respective market in which they operate, their position regarding operational cash flow currency, such as payments of risk, in accordance to the strategy they have defined. project-related materials and corporate insurance poli- >> All operations of businesses and corporate areas are per- cies. formed within the limits approved for each case. >> The businesses, corporate areas, business lines, and >> Revenues in the Group’s subsidiaries that are directly companies establish the risk management controls nec- linked to currencies different than their respective opera- essary to ensure that market transactions are performed tional cash flow currency. according to the policies, rules, and procedures of Enel Chile. To mitigate exchange rate risk, the Enel Chile Group seeks to maintain a balance between flows indexed in US dollars or local currencies, should there be any, and levels of as- sets and liabilities in such currency. The objective is to mini- Interest rate risk mize cash flow exposure to exchange rate fluctuations.
The instruments currently used to comply with this policy Interest rate fluctuations modify the fair value of assets are currency swaps and exchange rate forwards. and liabilities that accrue interest at fixed rates, as well as the future flows of assets and liabilities based on a variable interest rate.
82 Annual Report Enel Chile 2017 Commodities risk Liquidity risk
The Enel Chile Group is exposed to certain commodity The Group’s liquidity is provided by sufficient committed price fluctuations, primarily through: long-term credit facilities and short-term financial invest- ments to finance projected needs for a certain period of >> Fuel purchases in the process of generating electricity. time, which is calculated as a function of the overall situa- tion and expectations regarding debt and capital markets. >> Energy trading operations in local markets. Said projected needs include net financial debt maturities, To reduce risk in situations of extreme drought, the Group in other words, after financial derivatives. For further detail has designed a commercial policy, defining levels of sale regarding characteristics and conditions of financial debt commitments, in accordance to its power plant’s genera- and financial derivatives, see Notes 18, 20 and Appendix 4. tion capacity in a dry year, including risk-mitigation clauses in some contracts with non-regulated customers. In the As of December 31, 2017, the liquidity of the Enel Chile case of regulated customers that are subject to long-term Group amounted to ThCh$ 419,456,026 in cash and cash tender processes, indexation clauses reduce commodity equivalents, and ThCh$ 199,271,103 in unconditional price exposure. committed long-term credit lines. As of December 31, 2016, the liquidity of the Enel Chile Group amounted to Taking g the operating conditions faced by the electrici- ThCh$ 245,999,192 in cash and cash equivalents, and ty generation market in Chile into consideration, such as ThCh$ 342,827,047 in unconditional committed long-term droughts and commodity price volatility in international credit lines. markets, the Company is constantly evaluating the conve- nience of hedging to mitigate the impact of price fluctua- tions on profits. Credit risk As of December 31, 2017, the company had outstanding operations for 2.3 million MMBtu, to be settled in January 2018. The Enel Chile Group conducts a detailed credit risk fol- low-up. As of December 31, 2016, there were swap operations outstanding for 3 million barrels of Brent oil to be settled between January and November 2017, and 3 million MMB- TU of Henry Hub gas to be settled between January and Trade accounts September 2017. receivables These hedging instruments may be modified or could in- clude other commodities because of constantly changing Credit risk associated to accounts receivables stemming operating conditions. from commercial activity has historically been limited, mainly due to short-term payment deadlines that prevent clients from accumulating significant individual amounts. This is applicable to our generation business as well as our electricity distribution business.
Risk Factors 83 In the generation business, supply disruption is a possi- bility in the event of non-payment in some non-regulated customer contracts and payment defaults also may qual- Risk measurement: ify as a cause for contract termination. For this purpose, and although the risk is limited, credit risk and maximum The Enel Chile Group measures the Value at Risk of its debt amounts exposed to payment risk are constantly mea- and financial derivatives to monitor the risk taken by the sured and monitored. company, thus limiting income statement volatility.
Our electricity distribution company has the power to dis- The positions included in the portfolio used to calculate the connect supply due to contract breaches by our custom- present Value at Risk include: ers. Disconnection is applied according to current regula- tion, which facilitates the credit risk evaluation and control >> Financial debt. process, which is also limited.
>> Debt-hedging derivatives.
The calculated Value at Risk represents a potential loss of Financial assets: value of the portfolio described above in one quarter, with 95% confidence. To this effect, the company studied the volatility of variables at risk that affect the value of the port- Investments of cash surpluses are made in first class do- folio, with respect to the Chilean peso, which includes: mestic and foreign financial institutions, within limits es- tablished for each entity. >> US dollar Libor Rate.
Banks considered for investments have investment grade >> Exchange rates of currencies included in the calculations. qualification, considering the three major international rat- ing agencies (Moody’s, S&P and Fitch). The calculation of Value at Risk is based on the extrapola- tion of future market value scenarios (one quarter out) of Investments may be backed by Chilean Treasury bonds and the variables at risk in scenarios based on real observations securities issued by first-class banks, prioritizing the latter for the same period (quarter), for five years. as they offer better returns (always within existing invest- ment policy guidelines). The Value at Risk for the next quarter, with 95% confi- dence, is calculated as the percentile of the most adverse 5% of possible quarterly changes.
Based on the hypotheses stated above, the Value at Risk for the aforementioned positions, one quarter out, is ThCh$ 66,890,686.
This value represents the potential increase in the debt and derivatives portfolio, and therefore is intrinsically linked, among other factors, to the value of the portfolio at the end of each quarter.
84 Annual Report Enel Chile 2017 About 55% of installed generation capacity in 2017 was Other risk hydroelectric. Accordingly, extremely dry hydrological con- ditions could adversely affect the business, results of oper- ations and financial condition. Results have been adversely factors affected when hydrological conditions in Chile have been below their historical average. Economic fluctuations in Chile, as well as certain eco- nomic interventionist measures by government au- Below average hydrological conditions not only reduce the thorities could affect our results of operations and fi- ability to operate hydroelectric plants at full capacity, but nancial condition of the company, as well as the value also may result in increased transportation costs of water of our securities. for cooling purposes in the San Isidro thermal power plant (778 MW). Although our subsidiary Enel Generación Chile All operations of Enel Chile are located in Chile. Accord- has entered into certain agreements with the Chilean gov- ingly, its revenues are affected by the performance of the ernment and local irrigators regarding the use of water for Chilean economy. If local, regional, or worldwide economic hydroelectric generation purposes, especially during peri- trends adversely affect the Chilean economy, the financial ods of low water levels, if drought conditions persist or condition and results of operations could be adversely af- worsen, increased pressure by the Chilean government or fected. Moreover, insufficient cash flows for our subsidiar- third parties to further restrict water use could arise. ies could result in their inability to meet debt obligations and the need to seek waivers to comply with restrictive Thermal plant operating costs can be considerably high- debt covenants and increasing cost for subsequent financ- er than those of hydroelectric plants. Operating expens- ings. es increase during periods of drought, as thermal plants are used more frequently. Also, the company might have The Chilean government has exercised in the past, and to buy electricity at higher spot prices in order to comply continues to exercise, a substantial influence over many with contractual supply obligations, and the cost of these aspects of the private sector, which may result in changes electricity purchases may exceed the contracted electrici- to economic or other policies. ty sales prices, thus potentially producing losses in those contracts. Future adverse developments in Chile or changes in pol- icies regarding exchange controls, regulations and taxa- Droughts also affect the operation of thermal plants, in- tion may affect the company’s results of operations and cluding facilities that use natural gas, fuel oil or coal as fuel, financial condition. Inflation, devaluation, social instability in the following ways: and other political, economic, or diplomatic developments could also reduce profitability. In addition, Chilean financial • Thermal power plants require water for cooling, and and securities markets are influenced by economic and droughts not only reduce the availability of water, but market conditions in other countries and may be affected also increase the concentration of chemicals, such as by events in other countries, which could adversely affect sulfates, in the water. High concentration of chemi- the value of securities. cals in the water used for cooling increases the risk of damaging the thermal plant’s equipment, as well as Because the business depends heavily on hydrology, the risk of violating environmental regulations. As a droughts, floods, and other weather conditions may result, water has been purchased from agricultural ar- adversely affect the Company’s operations and profit- eas that are also experiencing water shortages. These ability. water purchases may increase operating costs and may require negotiation with local communities.
Risk Factors 85 • Thermal power plants that burn natural gas generate including payments related to damage compensation (legal emissions, such as nitric oxide (NO), carbon dioxide and voluntary), fines (see hereafter), line maintenance and (CO2) and carbon monoxide (CO). Power plants that tree trimming plans. operate with diesel emit NO, sulfur dioxide (SO2), and particulate matter into the atmosphere. Coal-fired Governmental regulations may adversely affect our plants generate SO2 and NO emissions. Therefore, businesses. greater use of thermal plants during periods of drought generally increases the risk of producing higher level The Company and the tariffs we charge our customers, of pollutants, which would also decrease our operat- among other aspects of the business, are subject to ex- ing income due to the payment of so-called “green tensive regulation and these regulations may adversely af- taxes” (see “Environmental regulations may cause fect our profitability. For example, governmental authorities delays, impede the development of new projects, or might impose material rationing policies during droughts or increase costs of operations and capital expenditures” prolonged failures of power facilities, which may adverse- below). ly affect our business, results or operations and financial condition. A full recovery from the drought that has been affecting the regions where most of our hydroelectric plants are located Governmental authorities may also delay the distribution may take an extended period of time, and new drought pe- tariff review process, or tariff adjustments may be insuffi- riods could recur in the future. A prolonged drought could cient to pass through all costs to our customers. Similarly, exacerbate the risks described above and have an addition- electricity regulations issued by governmental authorities al adverse effect on the business, results of operations and in Chile may affect the ability of generating companies to financial condition. collect revenues sufficient to offset their operating costs.
The distribution business is also affected by weather con- The inability of any company in our consolidated group to ditions. Moderate temperatures, for instance, might de- collect revenues sufficient to cover operating costs may crease heating or air conditioning use, which would affect affect the ability of that company to operate normally and energy consumption. Even with extreme temperatures, may otherwise have an adverse effect on our business, demand can increase significantly within a short period of financial results and operations. time, which would affect service and result in stoppages which may be subject to fines. Depending on weather con- The former government initiated a review of the country’s ditions, results obtained by our distribution business may energy policies, and in 2014, announced the Energy Agen- vary significantly from year to year. During 2017, we faced da. One of the objectives of the Energy Agenda was the in- rainstorms and the most damaging snowstorm in Santia- corporation of non-conventional renewable energy (NCRE) go in the last 47 years, leaving parts of Santiago without sources to reduce the cost of electricity. Solar and wind power for more than a week. The first inclement weather sources are currently the NCRE technologies most widely front was in June 2017, where gusts of winds of 80 km/h used. NCRE facilities are able to dispatch energy to the and precipitations of 63 mm were recorded. Trees, blasting system at very low marginal costs, and substitute sourc- of roofs, billboards and other objects fell on the electric- es that are more expensive, such as conventional thermal ity networks. As a result, 125 thousand customers were plants. However, wind and solar sources have higher inter- affected (7% of our total customer base as of December mittency, since they can only generate electricity when the 2017). One month later, in July 2017, a snowstorm affected wind blows or the sun shines. The National Electric Coor- the Metropolitan Region where up to 50 cm of snow fell in dinator (“CEN”, which replaced the former CDEC-SIC and some areas of Santiago, causing massive damage to elec- CDEC-SING) coordinates the dispatch from all sources. trical infrastructure, affecting approximately 342 thousand The balance of production not supplied by hydro and NCRE customers (18% of our total customer base as of Decem- plants comes from thermal plants, which are among the ber 2017) and 17% of our feeders. These situations signifi- most expensive energy sources, and in some cases, have cantly increased our costs due to emergency responses, restrictions on their operating power levels. Therefore, au-
86 Annual Report Enel Chile 2017 thorities are requesting thermal plant operators to reduce fected if water rights are denied or if water concessions their technical minimum power capacity, understood as are granted with limited duration” below). In August 2016, the minimum capacity at which a power plant should be Enel Generación Chile relinquished its unused water rights safely and permanently operated, and its minimum operat- in the Bardón Chillán 1, Chillán 2, Futaleufú, Huechún and ing time as recommended by the turbine manufacturer. A Puelo projects, booking a Ch$ 35.4 billion write-off. turbine that operates for less than the manufacturers’ rec- ommended minimum time, or less than the technical min- Regulatory authorities may impose fines on subsidiar- imum power capacity, will have higher maintenance costs. ies due to operational failures or any breach of regula- This situation could increase the cost of the unit and would tions. need to be covered by every generator, thereby reducing results of operations, until being recognized by the CEN. The electricity businesses may be subject to regulatory Producing below the technical minimum power capacity fines for any breach in current regulations, including ener- may also have environmental consequences and represent gy supply failures. an obstacle to meeting environmental standards. The CEN has the authority to audit technical parameters of any pow- In Chile, such fines may be imposed for a maximum of er plant, and in case of discrepancies, power plants are 10,000 Annual Tax Units (“UTA”, in its Spanish acronym), or exposed to fines or injunctions. Ch$ 5.5 billion using UTA as of December 31, 2017. Elec- tricity generation subsidiaries are supervised by local reg- In August 2016, the Superintendence of Electricity and Fu- ulatory entities and may be subject to these fines in cases els (“SEF” in its Spanish aronym) fined GasAtacama Ch$ where, in the opinion of the regulatory entity, operational 5.5 billion for allegedly providing inaccurate information to failures affecting the regular energy supply to the system the CDEC-SING, specifically for overestimating its techni- are the fault of the Company, such as when agents are not cal minimum power capacity and its operating time, which coordinated with the system operator. In addition, current resulted in higher operating costs to the system. In 2017, legislation establishes a compensation fee to end custom- AES Gener S.A., a competitor, requested Enel Generación ers when energy supply is interrupted for a longer period a US$ 65.8 million compensation payment for their alleged of time than the standard time allowed due to events or overpayments to GasAtacama. The alleged overpayments failures affecting transmission facilities. The compensation were tied to the technical minimum power capacity in- is calculated as a proportion of the energy not supplied, formed by GasAtacama at 310 MW with a 30h minimum with a minimum value between 20,000 UTA (Ch$ 11.3 bil- operation time that was later estimated by the CEN at lion) and the previous year’s energy sales revenue, in case 118 MW and a 2h minimum. Authorities may audit any of of generators. Due to extreme weather events occurred our technical thermal plant standards and any discrepan- during 2017, the Company paid Ch$2 billion in legal com- cy with our own calculations or assumptions could lead to pensation because of energy supply interruptions, and Ch$ fines and claims and adversely affect the business, operat- 3.4 billion in voluntary compensation to those clients who ing results and financial condition. were without electricity for more than 24 hours, with a maximum of Ch$ 25,000 per customer, equivalent to cus- In addition, changes in the regulatory framework are often tomers’ average monthly consumption amount (240 KWh/ submitted to legislators and administrative authorities, and month). some of these changes could have a material adverse im- pact on the business, results of operations and financial Further fines imposed on our power plants could adverse- condition. For instance, in 2005 there was a change in the ly affect our business, results of operations and financial water rights law in Chile to require the payment of unused condition. water rights, increasing the annual cost to maintain unused water rights for hydroelectric projects that are neither eco- As of December 31, 2017, Enel Distribución had four un- nomically nor technically feasible. (for further information, resolved fines imposed by the SEF for a total amount of see “Our business and profitability could be adversely af- 15,000 UTA (Ch$8.5 billion) due to various claims related
Risk Factors 87 to the extreme weather conditions in June and July 2017, fines. The Company will continue to be subject to future which are being appealed. For further information on fines, litigation proceedings, which could cause considerable ad- please refer to Note 35 of the Notes to our consolidated verse consequences to the business. financial statements. The financial condition or results of operations could be ad- We depend on payments from subsidiaries and joint- versely if positive results are not obtained in lawsuits and ly-controlled entities to meet payment obligations. proceedings against the Company. For more information on litigation proceedings, see Note 33.3 of the Notes to To pay its obligations, the Company relies on cash from the consolidated financial statements. dividends, loans, interest payments, capital reductions and other distributions from our subsidiaries. The ability of Environmental regulations may cause delays, impede subsidiaries to pay dividends, interest payments, loans and the development of new projects, or increase the costs other distributions is subject to legal constraints, such as of operations and capital expenditures. dividend restrictions, fiduciary duties and contractual lim- itations that may be imposed by local authorities. Operative subsidiaries are subject to environmental regula- tions that require environmental impact studies for future Dividend limits and other legal restrictions. The ability of projects and permits from both local and national regula- any subsidiary that is not wholly-owned to distribute cash tors, among other procedures. The approval of these envi- may be limited by the directors’ fiduciary duties of such ronmental impact studies may be withheld by governmen- subsidiaries to minority shareholders. Furthermore, some tal authorities, and therefore their processing time may be subsidiaries may be forced by law, in accordance with ap- longer than initially expected. plicable regulation, to diminish or eliminate dividend pay- ments. Because of such restrictions, subsidiaries might be, Projects that require consultation with local interest groups under certain circumstances, unable to distribute cash. in their evaluation process may be rejected, or their de- velopment impeded or slowed down. Interest groups may Contractual constraints. Distribution restrictions included also seek precautionary measures or other relief, which in some credit agreements of our subsidiaries that prevent could cause a negative impact if successful. Moreover, dividend payments and other distributions to shareholders projects that do not require consultation with local interest if the company is not in compliance with certain financial groups may be subject to intervention or suffer continu- ratios. Generally, our credit agreements prohibit any type ous resistance, delaying their approval process or devel- of distribution if there is ongoing default. opment.
Operating results of the Company’s subsidiaries. The ability Environmental regulations for existing and future power of subsidiaries to pay dividends, amortize loans, or make plants may become stricter, which would require increased other distributions, is limited by their operating results. To capital investments. For example, Decree 13/2011 of the the extent that the cash requirements of any subsidiary Chilean Ministry of the Environment, published in June exceeds its available cash, the Company will be unable to 2011, established stricter emission standards for existing rely on resources from such subsidiary. thermoelectric plants that were required to be met between 2014 and 2016, and stricter standards for new facilities or Any of the situations described above could negatively af- additional capacity. As of December 31, 2017, the estimat- fect our business, results of operations and financial con- ed total investment in reducing emissions was Ch$ 68,240 dition. million. Decree 13/2011 also required the establishment of a system of continuous emission monitoring, pursuant to The Company is involved in litigation proceedings. which thermoelectric plants must implement a monitoring system in accordance with the guidelines and protocols Currently, the Company is involved in various litigation issued by the Superintendence of the Environment. All proceedings, which could result in unfavorable verdicts or thermoelectric plants made incremental investments in-
88 Annual Report Enel Chile 2017 stalling abatement systems to control pollutant emissions Delays or modifications to any proposed project, and laws to comply with these environmental regulations. Any delay or regulations that may change or be interpreted in a man- in meeting standards constitutes a violation of these reg- ner that could adversely affect operations or plans for firms ulations, which established emission limits effective June in which the Group holds investments, could adversely af- 23, 2015, or June 23, 2016, depending on the power plant’s fect the business, results of operations, and financial con- location. Failure to certify the implementation of such mon- dition. itoring system may result in penalties and sanctions. Power plant projects may encounter significant opposi- Stricter emission limits. Any deviation from the environ- tion that may delay their development, increase costs, mental license to operate could result in significant sanc- damage the reputation and potentially result in impair- tions from authorities. ment of goodwill with stakeholders.
The Chilean Ministry of the Environment modified Decree The Company’s reputation is the foundation of the relation- 13/2011 and made emission standards for thermoelectric ship with key stakeholders. If the Company is unable to plants more restrictive, which will require additional in- effectively manage real or perceived issues that could im- vestments in the future. In June 2016, Law 20920, known pact the Company negatively, the business, results of op- as the recycling law, established the legal framework for erations or financial situation could be adversely affected. the recovery of waste in Chile. The Ministry of the Envi- ronment must establish recycling objectives for different In 2015, the Chilean Ministry of the Environment enacted products. The Company expects the first objectives to Law 20,500, setting the procedures for stakeholder partic- be established no later than 2019 and will force regulat- ipation in the preliminary phase of the evaluation process, ed companies to finance recycling management systems. to avoid conflicts of interest and minimize the project’s im- This may lead towards a need to recycle batteries in the pact. Power plants built before the adoption of these rules generation business, or street lights in the distribution and that were not submitted to local consultation may business, as well as electronic waste, such as discarded face opposition from several stakeholders, such as ethnic computers, telephones, etcetera. groups, environmental groups, land owners, farmers, lo- cal communities and political parties, among others, any The 2014 tax reform law, established an annual green tax of whom may impact the sponsoring company’s reputa- on stationary power generators, such as thermal genera- tion and goodwill. For example, between 2013 and 2016, tors, based on their emission of pollutants in the previous the Bocamina II power plant encountered substantial op- year. This provision came into effect in 2018. In December position from local fishermen’s unions that claim that the 2016, the Chilean Ministry of Environment published the facility negatively affects marine life and causes pollution, list of thermal generators subject to this tax, including all which resulted in the interruption of the power plant’s op- the Company’s thermoelectric plants in the country. These eration for more than a year. On July 1, 2015, Bocamina plants have reported their emissions during 2017 and will II resumed operations, after the approval of a new Envi- book an additional tax liability in 2018. The tax will be paid ronmental Qualification Resolution (RCA in its Spanish ac- in 2018, based on 2017 emissions. In addition, during 2017, ronym) in April 2015. Later, between November 23, 2015 the Superintendence of the Environment established new and January 7, 2016, a second group of fishermen illegally measurement, monitoring and reporting requirements nec- occupied the first high-tension pylon, which supports the essary to comply with the green tax, which are also appli- 154 kV and 220 kV circuits owned by Transelec S.A., which cable to requirements under Decree 13/2011. During 2017, serves Bocamina I and II. As a consequence, both Bocam- partially due to the Ch$ 17.3 billion higher thermal emission ina I and II were temporarily shut down. This second group taxes on thermoelectric plants, which will be paid in April claimed that they should receive the same benefits that 2018. Tax expense may increase in the future, increasing Enel Generación granted to the first group of fishermen costs of operation and therefore discouraging thermal elec- in the area. The financial effects of this illegal occupation tricity generation. and interruption of electricity transmission amounted to
Risk Factors 89 Ch$ 2.8 billion in losses. This situation increased the spot We are currently building the Los Cóndores project, which prices and anticipated use of hydroelectric reserves in the consists of a 150 MW pass-through hydroelectric power electricity market. Such groups and other similar groups plant. may have the ability to block power plants and directly af- fect results. The locations where the Company may develop new projects are also sometimes highly challenging in terms The operation of thermoelectric plants, especially coal of geographical topography, in some cases in mountain power plants, may also affect the company’s reputation slopes with very limited access. These factors may also among stakeholders, due to greenhouse gas emissions, lead to significant delays and cost overruns. which could adversely affect the environment. Political events or financial or other crises in any region Damage to reputation may exert considerable pressure worldwide can have a significant impact in Chile, and on regulators, creditors, and other stakeholders, and ulti- consequently may adversely affect operations, as well mately lead to the abandonment of projects or operations, as the Company’s liquidity. which would cause the share price to drop, and hinder our ability to attract and retain valuable employees, any of Chile is vulnerable to external shocks, including financial which could result in an impairment of goodwill with stake- and political events, which could cause significant eco- holders. nomic difficulties and affect growth. For example, the 2016 presidential election in the United States considerably in- Power plant construction may encounter delays or sig- creased the volatility of financial markets worldwide, due nificant cost overruns. to the uncertainty of political decisions. New policies ad- opted by the United States could affect world markets and Our power plant projects may be delayed in obtaining reg- global trade, and result in renewed volatility, especially in ulatory approvals, may face shortages or increases in the commodity prices. Similarly, instability in the Middle East, price of equipment, material or labor, and may be subject to or any other major oil producing region, could also result in construction delays, strikes, adverse weather conditions, higher fuel prices worldwide, which in turn could increase natural disasters, civil unrest, accidents, and human error. the cost of fuel for thermoelectric power plants, and ad- versely affect the results of operations and financial condi- Market conditions at the time projects are initially approved tion. Even temporary U.S. government shut-downs, such may differ significantly from those that prevail when proj- as those that took place in early 2008, and were threat- ects are completed, which in some cases may make them ened to begin on February 8, 2018, can have a very adverse commercially unfeasible. This has been the case in many effect on the timing, execution, and increased expense as- of our former projects, which were initially planned under sociated with main transactions and reorganizations involv- completely different market conditions with higher energy ing ADS holders and the U.S. SEC. prices prevailing in the market and less competition, that has now been enhanced by NCRE. Deviations from these An international financial crisis and its disruptive effects on assumptions, including timing estimations and expendi- the financial industry could negatively affect the Compa- tures related to these projects, may lead to cost over-runs ny’s ability to obtain new bank financing on the same his- and a completion time widely exceeding our estimates, torical terms and conditions we have obtained to this date. which in turn may have negative effects on our business, results of operations and financial condition. Over the last Political events or financial or other crises could also dimin- two years, the Company has recorded more than Ch$ 90 ish access to Chilean and international capital markets, or billion in impairment losses and write-offs due to abandon- increase the interest rates. Reduced liquidity could, in turn, ment of such projects. negatively affect capital expenditures, long-term invest-
90 Annual Report Enel Chile 2017 ments and acquisitions, growth prospects and dividend other assumptions upon which the offer consideration may policy. prove to be incorrect.
We may be unable to enter into suitable acquisitions. Under any of these circumstances, the business growth opportunities, revenue benefits, cost savings, or other ben- The Company permanently reviews acquisition prospects efits we anticipated from the 2018 Reorganization may not that may increase its market share or supplement existing be achieved as expected, or at all, or may be delayed. If we businesses, though there can be no assurance that we will incur greater integrations costs or achieve lower revenue be able to identify and carry out suitable acquisitions in the benefits or fewer cost savings than expected, the results future. The acquisition and integration of independent com- of operation and financial condition will suffer. panies that the Company does not own is generally a com- plex, costly, and time-consuming process that requires sig- The potential integration of Enel Chile and EGPL. nificant efforts and expenditures. If the company seals an acquisition, it could result in the incurrence of substantial The merger with EGPL involves the integration of a mature debt and assumption of unknown liabilities, the potential business, as is the case with our conventional energy busi- loss of key employees, amortization expenses related to ness, which we develop through Enel Generación Chile, tangible assets, and the diversion of management’s atten- with EGPL’s non-conventional renewable energy business. tion from other business concerns. In addition, any delay The objective of integrating operations is to increase reve- or difficulty encountered in connection with an acquisition nues and earnings of the businesses combined, and as a or integration of multiple operations could have a material combined company, increase our ability to satisfy the de- adverse effect on our business, financial condition and re- mands of our customers. In doing so, the Company may sults of operations. encounter significant difficulties integrating operations, and could even incur in substantial costs due to, among The Company may be unable to seize the business growth other things, the following reasons: opportunities, revenue benefits, cost savings, or other pro- jected benefits from the 2018 Reorganization, or, converse- • Differences in standards, controls, procedures and ly, may incur in unanticipated costs related to it, and there- policies, business cultures and compensation struc- fore affect the results of operation, financial condition, and tures between us and EGPL, and the need to imple- stock price. ment, integrate, and harmonize various business-spe- cific operating procedures and systems, as well as our In August 2017, the corporate reorganization (the “2018 financial, accounting, information, and other systems Reorganization”) process was started, which involved (i) a and those of EGPL; tender offer by Enel Chile of all outstanding shares of com- mon stock (including ADSs) of Enel Generación that were • Diversion of management attention from their respon- not owned by Enel Chile; (ii) a capital increase, required in sibilities to deal with integration issues; order to have a sufficient number of shares of common stock of Enel Chile available to deliver to tendering holders • Failure to retain our customers and suppliers, and of Enel Generación shares and ADSs, and (iii) a merger, in those of EGPL; and which Enel Green Power Latin America S.A. (“EGPL”) was merged into Enel Chile (the “Merger”). • Difficulties in achieving full utilization of our assets and resources and those of EGPL. The 2018 Reorganization, which will conclude on Abril 2, 2018, may not result in the business growth opportunities, The diversion of management attention, and difficulties revenue benefits, cost savings, or other benefits that have that may arise from the merger could increase costs or been projected. These benefits may not materialize and reduce revenues, earnings and operating results after the
Risk Factors 91 process is complete. Any delays encountered in the inte- Foreign exchange risks may adversely affect results gration process could have an adverse effect on revenues, and the U.S. dollar value of dividends payable to ADS level of expenses, operating results and financial condition, holders. which may adversely affect the value of our securities. The Chilean peso has been subject to devaluations and ap- The business and profitability could be adversely af- preciations against the U.S. dollar and may be subject to fected if water rights are denied or if water concessions significant fluctuations in the future. Historically, a signifi- are granted with limited duration. cant portion of the Company’s consolidated debt has been denominated in U.S. dollars. Although a substantial portion The Company owns water rights granted by the Chilean of our operating cash flows is linked to the U.S. dollar (es- Water Authority (Dirección General de Aguas) for the sup- pecially those from the generation business), it has gener- ply of water from rivers and lakes near production facilities. ally been, and will continue to be, exposed to fluctuations Under current law, these water rights are (i) unlimited in of the Chilean peso against the U.S. dollar because of time duration, (ii) absolute and unconditional property rights, lags and other limitations to adjusting our electricity tariffs and (iii) not subject to further challenge. Chilean genera- to the dollar, and the potential difficulty of incurring debt in tion companies must pay an annual license fee for unused the same currency as the operating cash flow. water rights. New hydroelectric facilities are required to obtain water rights, the conditions of which may impact Because of this exposure, the U.S. dollar value of cash gen- design, timing, or profitability of a project. erated by subsidiaries could decrease substantially due to peso devaluations against the U.S. dollar. Future volatility in In addition, Chilean Congress is analyzing amendments the exchange rate of the currency in which the Company to the Water Code since 2014 to prioritize the use of wa- receives revenues or incurs expenditures may adversely ter by defining its access as a human right that must be affect the business, financial condition and results of op- guaranteed by the State. The amendment establishes that erations. water use for human consumption, domestic subsistence and sanitation will always take precedence in granting and Long-term energy sale contracts are subject to fluctua- limiting the exercise of rights of exploitation. Under this pro- tions in the market prices of certain commodities, ener- posal, (i) new water use concessions would be limited to gy and other factors. 30 years, which would be extendable with respect to wa- ter rights actually used during the 30-year period, unless In the generation business, the company is economical- the Chilean Water Authority demonstrates the water rights ly exposed to fluctuations in the market prices of certain have not been used effectively; (ii) new non-consumptive commodities as a result of the long-term energy sales con- water rights would expire if the holder does not exercise the tracts the company has entered, and the fact that currently rights within eight years, (iii) existing non-consumptive wa- 97% of expected annual generation is sold under contracts ter rights that have not been used would expire within eight with terms of at least five years. As the selling party, the years from the enactment date of the new Water Code; and company has material obligations under long-term, fixed- (iv) the preservation of environmental water flows to pro- price electricity sales contracts. Prices in these contracts tect the ecosystem for future water rights was added for are indexed according to different commodities, exchange both consumptive and non-consumptive and empowers the rates, inflation, and the market price of electricity. Adverse Chilean Water Authority to mandate an environmental flow changes to these indices would reduce the rates charged requirement for existing water rights. The latter point would under long-term, fixed-price electricity sales contracts, reduce water availability for generation purposes. Any lim- which could adversely affect the business, results of oper- itations on the Company’s current water rights, the need for ations and financial condition. In the distribution business, additional water rights, or the current water concessions of we are also exposed to fluctuations in energy prices. unlimited duration could have a material adverse effect on hydroelectric development projects and profitability. In 2016, in conformity with Chilean law, some customers allowed to choose between either regulated or nonregu-
92 Annual Report Enel Chile 2017 lated prices and had chosen regulated prices in the past, • Ch$ 16 billion from 2021 to 2022; and chose the lower unregulated prices. These customers are tendering their energy needs, either directly or with other • Ch$ 730 billion thereafter. customers, because of the price advantage, when com- pared to regulated prices, because regulated prices are Some debt agreements are subject to (1) satisfying finan- based on contracts tendered in the past at higher prices. A cial covenants, (2) affirmative and negative covenants, (3) decrease in market prices could reduce the number of reg- events of default and (4) mandatory prepayments for con- ulated customers and could cause customers to choose tractual breaches, among other provisions. A significant another electricity provider, which would reduce the com- portion of the Company’s financial indebtedness is sub- pany’s customer base and therefore adversely affect the ject to cross-default provisions, which have varying defini- business, results of operations and financial condition. tions, criteria, materiality thresholds and applicability with respect to subsidiaries, which may give rise to cross de- The electricity business is subject to risks arising from faults. Because of the 2018 Reorganization, in which we in- natural disasters, catastrophic accidents, and acts of curred debt primarily to finance the Enel Generación Chile terrorism that could adversely affect our operations, tender offer, we also have our own financial indebtedness earnings and cash flow. at the holding company level, which is also subject to cross default provisions. Our primary facilities include power plants and distribution assets in Chile. They may be damaged by earthquakes, If the company or its subsidiaries breach any of these floods, fires, and other catastrophic disasters caused by contractual provisions, debtholders may demand immedi- nature or by humans, such as acts of vandalism, riots, and ate repayment, and a significant portion of debt could be- terrorism. A catastrophic event could cause disruptions come due and payable. The Company could be unable to in the business, significant decreases in revenue due to refinance its debt or obtain such refinancing in acceptable lower demand or significant additional costs not covered terms. In the absence of refinancing, the Company may be by business interruption insurance. There may be lags be- forced to dispose of assets in order to cover debt service tween a major accident or catastrophic event and the final payments in conditions that would not favor obtaining the reimbursement from insurance policies, which typically best price for such assets. Furthermore, selling its assets carry a deductible and are subject to per-event maximum quickly enough or at high enough prices to cover the debt amounts. could be impossible.
The company is subject to financing risks, such as It may also be impossible to raise the necessary funds re- those associated with funding new projects and capital quired to finish projects under development or construc- expenditures, and risks related to refinancing maturing tion. Market conditions prevailing at the time these funds debt. It is also subject to covenant compliance, all of are required or other unforeseen project costs could com- which could adversely affect liquidity. promise the Company’s ability to finance projects and ex- penditures. As of December 31, 2017, our consolidated interest-bearing debt totaled Ch$ 778 billion. The inability to finance new projects or capital expenditures to refinance existing debt could adversely affect results of The Company’s interest-bearing consolidated debt has the operation and financial condition. following maturity profile: The company relies on electricity transmission facilities • Ch$ 17 billion in 2018; that it does not own or control. If these facilities do not provide an adequate transmission service, we may be • Ch$ 15 billion from 2019 to 2020; unable to deliver the power we sell to our final cus- tomers.
Risk Factors 93 To deliver energy, the Company depends on transmis- In addition, we employ many highly-specialized employ- sion systems that are owned and operated by unaffiliat- ees, and certain actions such as strikes, walk-outs or work ed companies. This dependence exposes several risks. If stoppages by these employees could adversely affect the transmission is disrupted, or the transmission capacity is business, results of operations and financial condition, as inadequate, it may be impossible to sell and deliver elec- well as the company’s reputation. tricity. If a region’s power transmission infrastructure is in- adequate, the recovery of costs of sales and profit may Following the merger with EGPL, the Company may not be insufficient. If restrictive transmission price regulation is be able to retain key employees or efficiently manage the imposed, transmission companies upon whom the Com- larger and broader organization, which could negatively af- pany relies may not have sufficient incentives to invest in fect its operations and financial condition. Our post-merg- the expansion of their transmission infrastructure, which er success will depend in part on our ability to retain key could adversely affect operations and financial results. The employees of both Enel Chile and EGPL, and successfully construction of new transmission lines may take longer manage the larger and broader organization resulting from than in the past, mainly because of new social and environ- the merger. In this context, key employees may depart mental requirements that add uncertainty to the probability because of issues relating to the uncertainty and difficul- of completing these projects. ty of the integration process, or general discontent. Fur- thermore, the Company will face challenges inherent in In the past, there have been blackout events due to fail- efficiently managing an increased number of employees. ure of transmission lines that exposed weaknesses in the Accordingly, no assurance can be given that key employ- transmission grid, and the need for expansion and techno- ees will be retained or that the management of a larger logical improvements to increase its reliability. Additional and more diverse, combined organization will be success- failures may occur in the future. ful, which could result in an interruption of its combined business and negatively affect its combined operation and Any disruption or failure in transmission facilities could financial condition. interrupt the business, with could adversely affect the re- sults of operations and financial condition. The relative illiquidity and volatility of the Chilean se- curities markets and its dependence on economic con- The business could experience adverse consequences ditions in Latin America and other parts of the world if the company is unable to reach satisfactory collective could adversely affect the price of ordinary stock and bargaining agreements with unionized employees or ADS. retain key employees. Chilean securities markets are substantially smaller and A large percentage of employees are members of unions less liquid than the major securities markets in the United and have collective bargaining agreements that must be re- States or other developed countries. The low liquidity of the newed on a regular basis. The business, financial condition Chilean market may impair the ability of shareholders to sell and results of operations could be adversely affected by a shares, or holders of ADS to sell shares of ordinary stock failure to reach agreement with any labor union represent- withdrawn from the ADS program, into the Chilean market ing such employees or by an agreement with a labor union in the amount and at the price they wish to do so. Also, the that contains terms deemed unfavorable. Chilean law pro- liquidity and the market for shares or ADSs may be affect- vides legal mechanisms for judicial authorities to impose a ed by countless factors including variations in exchange and collective agreement if the parties are unable to come to interest rates, the deterioration and volatility of markets for an agreement, which may increase costs beyond what has similar securities, and any changes in liquidity, financial con- been budgeted. dition, creditworthiness, results, and profitability.
The share price could also decrease as a result of the 2018 Reorganization.
94 Annual Report Enel Chile 2017 In addition, Chilean securities markets may be affected in Interruption or failure of information technology or many ways by economic and market conditions and devel- communications systems, or external attacks or breach- opments in Latin American countries, other emerging mar- es of these systems could have an adverse effect on kets and elsewhere in the world. Even though economic operations and results. conditions in such countries may differ significantly from economic conditions in Chile, investors’ reactions to devel- The company depends on information technology, commu- opments in any of these other countries may have an ad- nication and processing systems (IT Systems) to operate verse effect on the market value and liquidity of securities its business, the failure of which could adversely affect the for Chilean issuers. An increase in perceived risks asso- business, results of operations and financial condition. ciated to investing in South American countries and else- where in the world could lessen capital flows to Chile and IT systems are becoming more vital worldwide, and the adversely affect the Chilean economy in general, and the electricity sector is not an exception. In the generation interests of investors in our shares or ADSs in particular. business, IT systems are essential in monitoring power plants’ operations, maintaining generation and network We cannot give assurance that the price or the liquidity performance, adequately generating invoices to custom- of its shares or ADSs will not be negatively affected by ers, achieving operational efficiencies and meeting ser- events in Latin American markets or the global economy vice targets and standards. Our distribution subsidiaries in general. could also be affected adversely because they rely heav- ily on IT systems to monitor their grids (known in some Lawsuits against the company outside Chile or com- countries as smart grids, due to the higher digitalization plaints based on foreign legal concepts may have unfa- of the market), billing processes for millions of customers vorable outcomes. and customer service platforms. Temporary or long-lasting operational failures in any of these IT systems, either in- The Company’s investments are all located outside of the tentional or not, could have a material adverse effect on United States. All directors and officers reside outside the results of operations. Additionally, cyber-attacks can have United States and most of their assets are located outside an adverse effect on the company’s reputation and rela- the United States as well. If any investor were to sue a tionship with the community. Over the past few years, director, officer, or expert in the United States, it may be global cyber-attacks on security systems, treasury opera- difficult for that investor to effect service of legal process tions, and IT Systems have intensified worldwide. We are within the United States upon these persons, or to enforce exposed to cyber-attacks aimed at damaging our assets against them, judgments obtained in the United States through computer networks, cyber-spying involving strate- courts based upon the civil liability provisions of the federal gic information that may be beneficial for third parties, and securities laws of the United States, in United States or the cyber-theft of proprietary and confidential information, Chilean courts. In addition, there is doubt as to whether an including customer information. The company is exposed action could be brought successfully in Chile on the basis to several sorts of cyber-attacks, including denial-of-service of liability solely based upon the civil liability provisions of attacks that may affect user service accessibility, as well as the United States federal securities laws. attacks that could affect domain name systems, preventing the use of certain useful web pages.
Risk Factors 95 15 Reorganization - Elqui Project
96 Annual Report Enel Chile 2017 Enel Chile corporate building
Letter from the Chairman 97 All operations described are instrumental to carry out the Elqui project Reorganization and it makes no sense to consider them individually, separate from each other. Within this context, the Shareholders´ Meeting approved the Reorganization On December 20, 2017, the Extraordinary Shareholders’ assuming that each and every one of these event is part Meeting of Enel Chile approved the corporate reorganiza- of the Reorganization. The Reorganization will be subject tion process (the “Reorganization”) that includes the fol- to compliance with the conditions indicated hereafter, that lowing phases: are all related to each other, so that, the success of the Reorganization depends on the materialization of them all. (1) A merger of Enel Green Power Latin America S.A. The Reorganization will not be carried out if the Enel Gen- with and into Enel Chile (hereafter the “Merger”) that eración PTO is not declared a success or if the conditions will require a capital increase in Enel Chile to pay the precedent to the Merger are not fulfilled. Therefore, every shareholders of Enel Green Power for the shares they phase of the Reorganization will be subject to the following have a right to according to the exchange ratio agreed conditions (“Conditions of the Reorganization”): to as part of the Merger, and that is conditioned to the success of Enel Chile´s PTO of Enel Generación Chile, (1) Merger: It was approved subject to fulfilling all the fol- among other conditions. lowing conditions:
(2) A Public Tender Offer of Shares to be carried out by a. That the shareholders of Enel Generación agree Enel Chile to purchase up to 100% of the shares and to the Amendment of the Enel Generación By- American Depository Shares (“ADS”) issued by Enel laws. Generación Chile held by its minority shareholders (“Enel Generación PTO”) and that will be subject to b. That Enel Chile declare the PTO a success. the condition, among others, that Enel Chile reach at least a 75% shareholding of Enel Generación Chile c. That the withdrawal rights the shareholders of and that the minority shareholders that agree to sell Enel Chile exercise related to the Merger do not their shares and ADSs, also agree to subscribe either exceed 5% of the company’s common stock with shares or ADSs, as the case may be, issued by Enel voting rights, and that the withdrawal rights of the Chile provided by the capital increase identified in nu- shareholders of Enel Chile do not lead a share- meral (3) below, and to pay for those Enel Chile shares holder to exceed the 65% maximum shareholding with part of the price of their Enel Generación Chile concentration limit of Enel Chile at the withdrawal shares sold in the Enel Generación PTO. expiration date. The number of shares considered is the number the new capital of Enel Chile will (3) A capital increase (“Capital Increase”), to be paid in be divided into once the Merger and the Capital cash, of Enel Chile to provide for sufficient shares and Increase of Enel Chile are approved. ADSs to deliver to the shareholders of Enel Gener- ación that accept to sell their shares in the Enel Gen- d. That no court ruling or resolution with the intent to eración PTO. object, sew or demand action or judicial process is pending at the effective date of the Merger that (4) The success of the Enel Generación PTO is subject to would reasonably result in the following conse- the amendment of the company´s bylaws that would quences: (i) prohibit or impede the materialization eliminate the restrictions imposed by Title XII of D.L of the Merger, or (ii) impose material limitations 3,500/1980, which limit the possibility for a sole share- on Enel Chile to exercise its ownership rights of holder to concentrate more that 65% of the capital Enel Green Power assets that are assigned to with voting rights of Enel Generación Chile (the “Enel Enel Chile as the result of the Merger; (iii) impose Generación Bylaw Amendment”). limitations on Enel Chile to continue developing
98 Annual Report Enel Chile 2017 or operating any project owned by Enel Green b. That when the applicable Capital Increase pre- Power; and in general any other action by a court, emptive subscription period concludes, the total superintendence, agency or any other competent number of shares of Enel Chile needed to deliver authority that would lead to any of the conse- to the shareholders of Enel Generación that sell quences identified in items (i) to (iii) above. their shares in the Enel Generación PTO be avail- able, as stated by the terms and conditions of the (2) Enel Generación PTO: Beginning the PTO process transaction. was approved subject to fulfilling all the following sus- pensive conditions: c. That as a consequence of : (i) the Enel Gener- ación PTO acceptances received and therefore a. That the shareholders of Enel Chile and Enel Gen- the number of shares of Enel Chile needed to be eración Chile had approved the Merger and that subscribed by the shareholders of Enel Gener- none of the conditions to the Merger described ación that sell their shares in the Enel Generación above had failed at the commencement date of PTO (as agreed by the Shareholders’ Meeting and the PTO; however, the fulfilment could be pend- informed through the initial Enel Generación PTO ing at that date. Prospectus Notice) and (ii) the Merger exchange ratio, Enel S.p.A. not lose its Enel Chile controlling b. That the shareholders of Enel Generación had shareholder status at any time, having to maintain agreed on the Enel Generación Bylaw amend- a shareholding of over 50.1% of Enel Chile shares ment, although the materialization of the amend- with voting rights at all times. ment may still be pending awaiting the fulfilment of its respective conditions precedent. d. That no court ruling or resolution with the intent to object, sew or demand action or judicial process c. That the shares issued as part of the Capital In- be pending that would reasonably result in the crease be registered in the Securities Register of following consequences: (i) prohibit or impede the SVS (currently the Financial Market Commis- the materialization of the Enel Generación PTO, sion). or (ii) impose material limitations on Enel Chile to purchase some or all Enel Generación shares, The success of the Enel Generación PTO will be subject to including any material restriction regarding the satisfying the following suspensive conditions, among oth- Amendment to the Enel Generación bylaws; or er conditions that the Board of Directors of Enel Chile could (iii) impose limitations on Enel Chile to continue establish. Enel Chile could waive any of these conditions, developing or operating any project owned by and the Board would be empowered by the Shareholders’ Enel Green Power; and in general any other action Meeting to carry out such action: by a court, superintendence, agency or any other competent authority that would lead to any of the a. That the Enel Generación PTO had been accepted consequences identified in items (i) to (iii) above. and received from the shareholders representing the number of shares necessary for Enel Chile to e. That no court ruling or resolution with the intent reach more than 75% ownership of Enel Gener- to object, sew or demand action or judicial pro- ación after the PTO and that these shareholders cess be pending that would reasonably result in acceptance also include their commitment to the following consequences: (i) prohibit or im- use part of the price in cash they receive for their pede the materialization of the Enel Generación Enel Generación Shares tendered to purchase the PTO, or (ii) impose material limitations on Enel shares of Enel Chile within the terms agreed by Chile to purchase some or all Enel Generación the Shareholders’ Meeting to be informed in the shares, including any material restriction regard- initial Enel Generación PTO Prospectus Notice. ing the Amendment to the Enel Generación by-
Reorganization - Elqui Project 99 laws; or (iii) impose material limitations on Enel (4) Enel Generación Bylaw Amendment: FThe amend- Chile to exercise the ownership rights of its Enel ment to the bylaws of Enel Generación was approved Generación shares, including its voting rights of under the suspensive condition that Enel Chile would such shares, and in general any other action by have declared the Enel Generación PTO a success. a court, superintendence, agency or any other competent authority that would lead to any of the All conditions to the Reorganization will be understood consequences identified in items (i) to (iii) above. as fulfilled, or not fulfilled if referring to the Condition Subsequent to the Capital Increase, if on December f. That no material adverse change had occurred in 31, 2018 or before, Enel Chile publishes the notice Enel Generación Chile. Within this context, a ma- declaring the success of the Enel Generación PTO, terial adverse change is any event, fact or circum- notice that is required by Article 212 of the Securi- stance that results in or causes a material damage ties Market Law. This must be disclosed opportunely to the businesses, property, assets, obligations, to the SVS (currently CMF) and the market through a results or operations of Enel Generación. Such significant event of Enel Chile. The conditions to the materiality and exclusions will be determined ob- Reorganization will be understood as not fulfilled, or jectively hereafter. fulfilled if referring to the condition subsequent to the Capital Increase, if on December 31, 2018 or before, (3) Capital Increase: The Shareholders’ Meeting agreed Enel Chile has not published the notice declaring the that the Capital Increase would be effective on the Enel Generación PTO a success as established by the date the Shareholders Meeting Minute is formalized terms and conditions of the PTO. as a public deed. Although, such Capital Increase will be void if the condition subsequent is fulfilled. If it is Consequently, having fulfilled the conditions to the Re- fulfilled, it is legally to be understood that the Capi- organization as indicated previously, or not fulfilling the tal Increase agreement was never adopted, and the Condition Subsequent to the Capital Increase, each Board of Directors is to establish such fact by public phase of the Reorganization will become effective on deed and an extract of such deed must be registered different dates, as indicated below for each event: in the Santiago Trade Register, and to the side of the company’s incorporation registration in the same Reg- (1) The Merger will become effective on the first ister and be published in the Official Gazette. business day of the month following the date in which the notice of the outcome of the PTO, as Also, if any of the conditions are satisfied, the compa- required by Article 212 of the Securities Market ny´s Board of Directors must give timely notice to the Law, is published by Enel Chile declaring it a suc- SVS (currently Financial Market Commission) and the cess. stock exchanges and carry out all other necessary ac- tions to note before such organizations that the agree- (2) The capital increase will become effective on the ment to increase capital by Ch$ 820,000,000,000 by date the Shareholders Meeting Minute is formal- issuing 10,000,000,000 new common shocks is no ized as a public deed, notwithstanding being sub- longer in force. ject to the Condition Subsequent.
100 Annual Report Enel Chile 2017 (3) The acceptance date of the shareholders and the the Enel Generación PTO price, will be the first formalization of the sale of their shares tendered business day of the month following the date in in the Enel Generación PTO will be the date in which the notice of the outcome of the PTO, as which the notice of the outcome of the PTO, as required by Article 212 of the Securities Market required by Article 212 of the Securities Market Law, is published by Enel Chile declaring it a suc- Law, is published by Enel Chile declaring it a suc- cess. cess. (5) The Enel Generación Bylaw Amendment will be (4) The payment date of the Enel Generación PTO, effective the date in which the notice of the out- the delivery date of the new shares of Enel Chile come of the PTO, as required by Article 212 of the to the shareholders of Enel Generación that ac- Securities Market Law, is published by Enel Chile cepted to sell their shares in the Enel Generación declaring it a success. PTO and the payment paid for such new Enel Chile shares by such shareholders with part of
Reorganization - Elqui Project 101 16 Industry regulation and electricity system operations
102 Annual Report Enel Chile 2017 Letter from the Chairman 103 Additionally, the law provides for a Panel of Experts, com- General prised of professional experts, whose main responsibility is to acts as a court, issuing enforceable resolutions in dis- putes related to subjects referred to by the Electricity Law features and other electricity related laws.
According to the Law, the operation and coordination of the Chilean electricity system is to be carried out by a Na- a) Regulatory framework: tional Electricity Coordinator. It is an independent entity in charge of coordinating the operation of the electricity system with the following objectives: i) maintain service Chile’s electricity sector is regulated by the Chilean Elec- security; ii) guarantee the efficient operation of the facili- tricity Law 20,218, contained in the Ministry of Mining DFL ties connected to the system; and iii) guarantee open ac- 1 issued in 1982, whose restated text was determined by cess to all transmission networks. The main activities of Ministry of Economy DFL 4, issued in 2006 (the “Electric- this entity include the coordination of electricity market ity Law”) and its respective regulations contained in D.S. operations, authorization of connections, supplementary 327 issued in 1998. services management, implementation of information sys- tems available to the public, and monitor competition and The main authority in the energy industry is the Ministry payments, among others. of Energy that is the government body responsible for pro- posing and delivering comprehensive public policies as a The Chilean electricity sector is physically divided into three coordinate effort. It exists since February 1, 2010 as an au- main networks, the National Electricity Network (“SEN” in tonomous entity after being part of the Ministry of Mining its Spanish acronym) and two smaller isolated networks; for many years. Aysén and Magallanes. The SEN is the outcome of the integration of the Central Interconnected System (“SIC” in The National Energy Commission (”CNE”, in its Spanish its Spanish acronym) and the Norte Grande Interconnected acronym) that regulates the electricity industry and the System (“SING” in its Spanish acronym) that took place Superintendence of Electricity and Fuel (Chilean “SEC”, in in November 2017. Until then the SIC was the main grid its Spanish acronym) that is the supervising body, are also and extended 2,400 km from Taltal in the north to Quellón relevant industry authorities. They report to the Ministry of on the island of Chiloé to the south. The SING covered the Energy. Other entities that report to this Ministry are: the northern part of the country, from Arica to Coloso, and ex- Chilean Nuclear Energy Commission (“CChEN”, in its Span- tended 700 km. ish acronym), the Chilean Energy Efficiency Agency that is in charge of promoting energy efficiency, and the Cen- The electricity industry in Chile is divided into three seg- ter for Innovation and Promotion of Sustainable Energies ments or businesses: generation, transmission, and distri- (”CIFES”, in its Spanish acronym), which in 2014, replaced bution. Operations of the related facilities must be inter- the Renewable Energies Center (“CER””, in its Spanish ac- connected and in coordination to supply electricity at the ronym). minimum cost within the certain safety and quality stan- dards required by electricity industry regulation. The CNE is the entity in charge of proposing the regulated Given the structural characteristics of the transmission and tariffs, approving the annual transmission expansion plans, distribution segments, they are considered natural monop- and elaborating the indicative plan for the construction of olies and are therefore subject to special industry regula- new electricity generation facilities. The Chilean SEC in- tion, the network is open access, and tariffs are regulated. spects and oversees compliance with the law, rules regu- lations and technical norms applicable to electricity gener- The Chilean electricity market trades two products (energy ation, transmission and distribution, liquid fuels and gas. and capacity), and additionally several related services. The
104 Annual Report Enel Chile 2017 National Electricity Coordinator performs the calculation of nature of the activity and the need to guarantee adequate market balances, determines the transfers among gener- access to all players. The Electricity Law defines limits to ation companies and calculates the hourly marginal cost, the market share that generation companies and distribu- which is the price at which energy transfers are carried out. tion companies may have of the National Transmission seg- The CNE determines the price of generation capacity. ment and prohibits National Transmission companies from participating in the generation and distribution segments. Customers are classified according to their demand as regulated or unregulated. Regulated customers are those whose connected capacity is below 5,000 kW. Customers a.1 Generation segment with connected capacity between 500 kW and 5,000 kW may choose to be regulated or unregulated, subject to the The operations of generation companies are conditioned respective price regime. by the operations plan of the System Coordinator, although they may freely decide whether to sell their energy to ei- ther regulated or nonregulated customers. Any surplus or deficit between sales and production is sold to or bought Limits to integration from other generators at the spot market price. and concentration A generation company may have the following types of customers: In Chile, antitrust legislation along with specific regulation applicable to the electricity industry define criteria to avoid • Nonregulated customers: They are customers certain levels of market concentration and abusive prac- whose connected capacity is greater than 5,000 kW, tices. mainly industrial and mining companies. These cus- tomers may freely negotiate their electricity supply Companies are allowed to participate in the different indus- prices with generators or distributors. Customers try segments (generation. distribution and commercializa- whose connected capacity ranges between 500 and tion/trading) in so far an adequate level of corporate and 5,000 kW may choose to negotiate prices with their accounting separation exists. The transmission sector is suppliers or be subject to regulated tariffs for a mini- where most restrictions are imposed, mainly due to the mum of 4 years in either regime.
Industry regulation and electricity system operations 105 • Distribution companies: They supply their regulated a.2 Transmission segment customers through public tenders regulated by the CNE and supply their nonregulated customers through Transmission systems are comprised of lines and substa- bilateral contracts. tions that form an electric system that are not distribution installations. They are divided into five segments: Nation- • Generation companies on the Spot or short-term al Transmission, Development Pole Transmission, Zonal market: It refers to the transactions of energy and Transmission, Dedicated Transmission and also Internation- capacity between generation companies resulting al Interconnection Systems. from the efficient operation of the system which is coordinated by the National Electricity Coordinator. Transmission installations are open access to any user that The surplus (deficit) of production after supplying cus- requests it, without discrimination. The compensation for tomer commitments are transferred by selling (buying) existing transmission installations, either national or zonal, to (from) other generators connected to the system. is determined by a tariff setting process performed every Electricity transfers are priced at the marginal cost of four years. This process determines the Annual Transmis- the system. Capacity transfers are carried out at the sion Value comprised of efficient operations and manage- corresponding node price, as set every semester by ment costs and an investment value annuity, determined the authority. by a discount rate (minimum 7% after tax) set by the au- thority every four years based on a study and the useful In Chile, capacity payments to each generator depend on life of assets. the calculation, based on current rules, performed annually by the National Electricity Coordinator that determines the The development of the national and zonal transmission firm capacity of each power plant. Firm capacity mainly de- systems is determined by a regulated and centralized pro- pends on availability, of the facilities and of the source of cess carried out by the National Electricity Coordinator, generation. which presents an expansion plan every year that must be approved by the CNE. Non-conventional renewable energies The expansion of both systems is granted through an open tender process that discriminates new installations from enlargement of existing installations. The tenders carried Law 20,257 enacted in April 2008 creates incentives to use out for new installations grant the winner ownership of the Non-Conventional Renewable Energies (NCRE). This rule installation to be built. The expansion of existing installa- determined that by 2014, at least 5% of energy commer- tions, on the other hand, belongs to the owner of the orig- cialized by generators must come from renewable sourc- inal installation, who is obliged to tender the construction es and must progressively increase 0.5% every year from of the required expansion. 2015 until 2024 to reach 10%. This law was modified in 2013 by Law 20,698, entitled the 20/25 law, establishing The remuneration of the expansion of existing facilities is that by 2025, 20% of the electricity matrix must be cov- determined by the outcome of the bid and represents the ered by NCRE sources. For contracts in force up to July income for the first 20 years of operations. From year 21 2013, the withdrawals established by the previous law are on, the remuneration of such transmission facilities is de- to be respected. termined as existing assets.
106 Annual Report Enel Chile 2017 a.3 Distribution segment Distribution Value Added (VAD in its Spanish acronym). The VAD is based on an efficient model company scheme and the typical area concept. For regulatory purposes, the distribution segment is de- fined as all electricity supplied to end customers at a volt- To determine the VAD, the CNE classifies the companies age of up to 23kV. with similar distribution costs into groups named “typical areas”. For each typical area, the CNE and the distribution Distribution companies operate under the framework of companies hire independent consultants to carry out stud- a public service concession. They have the obligation to ies to determine the costs of an efficient model company, provide electricity at regulated prices to regulated custom- considering fixed costs, average energy and capacity loss- ers (customers with under 5,000 kW connected capacity, es, and standard investment, maintenance, and operations unless falling within the 500 and 5,000 kW category and costs related to electricity distribution. The annual invest- chose the nonregulated tariff). Nonregulated customers ment costs are calculated based on the Net Replacement may negotiate their electricity supply with any generation Cost (VNR in its Spanish acronym) of facilities adjusted to or distribution company, but must pay a regulated toll for demand, expected life and a 10% real annual discount rate. using the distribution network.
The VAD is then determined as a weighted average, one- Regarding electricity supply to regulated customers, the third of the value estimated by the study of the companies law determines that distribution companies must perma- and two-thirds by the CNE. The CNE then determines the nently have electricity available to supply its customers basic tariffs and verifies that the aggregate return of the and it must obtain such electricity through open, non-dis- industry is within the 10% plus/minus 4% range. criminatory and transparent public tenders. These tenders are designed by the CNE and are carried out at least five Additionally, every four years, when the VAD is being calcu- years in advance to award 20-year term contracts. If de- lated, the Antitrust Court reviews the services considered mand changes unexpectedly, the authority has the power to be Related Services and subject to price regulation. to call a short-term tender and also a regulated procedure to remunerate noncontracted electricity sales. The Chilean distribution model is a consolidated model that has carried out eight price-settings processes since the pri- The processes for setting distribution tariffs are carried out vatization of the sector. every four years based on a cost analysis to determine the
Industry regulation and electricity system operations 107 The process was led by the Secretary of Energy in collab- oration with the university Pontificia Universidad Católica b) Regulatory issues 2017 de Chile. During November and December of 2016 and until late January of 2017, workshops were carried out dis- cussing the following issues: “Development of the distri- Law 20,928 - Tariff equality bution network”, “Financing the Network of the future and law its tariff structure”, “Electricity distribution business model”, and “Services offered by the network of the future”. This first diagnostic stage of the distribution sector concluded On June 22, 2016, the Ministry of Energy published Law on April 13. The results are expected to be disclosed by the 20,928 in the official gazette. This Law establishes “elec- authorities of the next government. tricity tariff equality mechanisms” and modifies the Elec- tricity Law D.F.L. 4/2006. This law states that the maximum tariffs that distribution companies may charge residential customers must not exceed the average national tariff by CNE 2017 Regulatory Plan more than 10%. The differences arising from the appli- cation of this mechanism will be progressively absorbed Pursuant to Exempt Resolution 23 dated January 13, 2017, by the remaining customers subject to regulated prices and according to Article 72-19 of the Electricity Law, the that are under the mentioned average, except for those CNE published its 2017 Annual technical regulation devel- residential users whose monthly average consumption of opment plan. The plan included modifying the Technical energy in the prior calendar year is lower than or equal to Service Safety and Quality Regulations, and the prepara- 200 kWh. It also establishes a discount to be applied to tion of the technical annexes and rules applicable to elec- the energy component of the node price that distribution tricity generation, transmission and distribution facilities. companies pass through to regulated customers that be- long to districts that are intensive in electricity generation and located in electricity systems with over 200 MW of Rules published in 2017 installed capacity.
Several rules related to the Transmission Law (Law 20,936) Notwithstanding the above, the law empowers the regu- were published in 2017. The rules enacted to this date are: lator to incorporate certain services that are not electricity Long term Electric Energy Planning Rules; Rule setting the distribution supply into the VAD. requirements and procedures applicable to international trade of electric services; Rules to determine the prelimi- Within this context, in January 2017, the Ministry of En- nary sections of new transmission system works; Rules to ergy, the CNE and the Chilean SEC announced that the determine and pay compensation for unavailability of elec- cost of the “interruption and reconnection” service due tricity supply and the Rules to dictate the technical norms to non-payment would no longer be charged as a distri- governing technical aspects, such as, safety, coordination, bution-related service, but to be included in the electricity electricity information and figures regarding electricity sec- distribution tariff for 2016 – 2020. tor operations. In December, the Rules on Complementary Services were submitted to the Government Comptroller Office. It is expected to be published in early 2018. Distribution Law The work carried out regarding the Transmission Law was published through Exempt Resolution 659: Technical provi- On September 29, 2016, the seminar entitled “The Future sions to implement Article 8 of Law 20,870 that regulates of Electricity Distribution” took place formally opening the the tax payments for thermal electric power plant emis- discussion on the new national electricity distribution law. sions as indicated in the Tax Law Reform.
108 Annual Report Enel Chile 2017 Technical service quality ties. Within this context, on December 29, 2017, the CNE published Exempt Resolution 770 that defined the new norm applicable to distri- projects and expansion projects resulting from this annual bution systems planning process. According to the stages identified by the Law, those interested (duly registered in the citizen par- ticipation register) may present their observations to the Exempt Resolution CNE 706 that set the technical service expansion plan during the first days of January 2018. quality norm for distribution systems was published on De- cember 18, 2017. The preparation of this norm was part of the CNE 2017 Regulatory Plan. It was carried out by form- ing an advisory committee and then submitting the text to public consultation. c) Tariff reviews and supply processes The new regulation increases electricity distribution tech- nical and commercial requirements. The aspects worth highlighting among the new rules are: Reliability indicators c.1 Electricity distribution (includes SAIDI, SAIFI, TIC and FIC indicators); product quality; measurement; monitoring and control; and com- tariff setting process mercial quality. The tariff setting process for the 2016-2020 period conclud- ed with the publication of tariff decree 11T in the Official 2017 Transmission expan- Gazette that sets the distribution tariff formulas effective, retroactively, from November 4, 2016. sion plan
The Electricity Law includes a procedure that must be carried out every year to plan for new transmission facili-
Industry regulation and electricity system operations 109 c.2 Tariff setting process of The “Preliminary Technical Report on the Annual Value of the Zonal System and the Dedicated Transmission System electricity distribution re- 2018-2019” was published on February 10, 2017 through lated services CNE Exempt Resolution 83. The Final Technical Report was published on March 28, 2017 through CNE Exempt Resolution 149. To the date of this report, the tariff decree The “Final Electricity Distribution-Related Services Cost that will set the new tariffs is pending. Study Report” was published on January 20, 2017. The CNE approved the technical report entitled “Tariff Formu- las of Non-Electricity Supply Services, related to Electricity Distribution” through Exempt Resolution 213 dated April c.4 Transmission tariff set- 27, 2017. To the date of this report, the tariff decree with the ting process 2020-2023 new tariffs is pending.
Within the context of the Electricity Transmission Tariff setting process for 2020-2023, the regulator issued the c.3 Tariff setting process of preliminary technical report “Rating of Transmission Sys- zonal transmission tem Installations” through CNE Exempt Resolutions 771 dated December 29, 2017. Also, through Exempt Reso- lutions 769 the CNE issued the Preliminary Technical and As determined by Article 20 of the transitory provisions of Administrative Terms required to carry out the Valuation of Law 20,936, the results of the tariff process carried out Transmission System Installations. According to the stag- for the 2016-2019 period are applicable to the 2018-2019 es identified by the Law, those interested (duly registered period. in the citizen participation register) may present their ob- servations to these documents during the first days of Jan- uary 2018.
110 Annual Report Enel Chile 2017 c.5 Electricity tenders
Three tenders have been carried out under the new ten- der’s law: Supply Tender 2015/01, Supply Tender 2015/02, and Supply Tender 2017/01.
The 2015/02 tender began in June 2015 and concluded in October 2015. It awarded three blocks for a total 1.2 TWh/ yr (100%) at an average 79.3US$/MWh.
The 2015/01 tender began in May 2015 and concluded in July 2016. It awarded five blocks for a total 12.4 TWh/yr (100%) to 84 companies at a weighted average 47.6US$/ MWh, adding new players to the market.
Enel Generación Chile was awarded 5.9 TWh/yr. represent- ing 47.6% of the total energy awarded in the 2015/01 ten- der.
The supply tender 2017/01 began in January 2017 and con- cluded in November 2017. It awarded a total 2,200 GWh/ yr (100%) to 5 companies at a weighted average 32.5 US$/ MWh.
As in the previous process, Enel Generación Chile was awarded the most with 1.2 TWh/yr. representing 54% of the total energy awarded.
Industry regulation and electricity system operations 111 17 Electricity generation
112 Annual Report Enel Chile 2017 Letter from the Chairman 113 Enel Generación Chile and its subsidiaries have a generating park comprised of 103 units spread out on the Central Inter- connected Grid (SIC in its Spanish acronym) and 8 units on the Northern Interconnected Grid (SING in its Spanish acronym). Generation Power Plants of Enel Generación Chile and subsidiaries.
Installed capacity (MW) (1) Power plant Company Technlogy 2016 2017 Los Molles Enel Generación Chile Hydroelectric 18 18 Rapel Enel Generación Chile Hydroelectric 377 377 Sauzal Enel Generación Chile Hydroelectric 77 77 Sauzalito Enel Generación Chile Hydroelectric 12 12 Cipreses Enel Generación Chile Hydroelectric 106 106 Isla Enel Generación Chile Hydroelectric 70 70 Abanico Enel Generación Chile Hydroelectric 136 136 El Toro Enel Generación Chile Hydroelectric 450 450 Antuco Enel Generación Chile Hydroelectric 320 320 Ralco Enel Generación Chile Hydroelectric 690 690 Palmucho Enel Generación Chile Hydroelectric 34 34 Taltal Enel Generación Chile Fuel/Natural Gas 245 245 Diego de Almagro Enel Generación Chile Fuel/Natural Gas 24 24 Huasco TG Enel Generación Chile Fuel/Natural Gas 64 64 Bocamina Enel Generación Chile Coal 478 478 San Isidro GasAtacama Chile Fuel/Natural Gas 379 379 San Isidro 2 GasAtacama Chile Fuel/Natural Gas 399 399 Quintero Enel Generación Chile Fuel/Natural Gas 257 257 Ojos de Agua GasAtacama Chile Hydroelectric 9 9 Pehuenche Pehuenche Hydroelectric 570 570 Curillinque Pehuenche Hydroelectric 89 89 Loma Alta Pehuenche Hydroelectric 40 40 Pangue GasAtacama Chile Hydroelectric 467 467 Canela GasAtacama Chile Wind 18 18 Canela II GasAtacama Chile Wind 60 60 Tarapacá TG GasAtacama Chile Fuel/Natural Gas 24 24 Tarapacá carbón GasAtacama Chile Coal 158 158 Atacama GasAtacama Chile Diesel /Natural Gas 781 781 Total 6,351 6,351
(1) These figures result from the maximum capacities determined by Enel Generación Chile’s Operational Norm No 38 “Regulation for defining maximum capacity in the hydroelectric and thermal plants of Enel Generación Chile” as of December 31 each year. They are the maximum design capacity of the generating units, corroborated with contractual satisfaction guaranteed tests made by the manufacturer of the generating equipment, in most cases. In some cases, the figures of maximum capacity may differ from the capacity declared to the regulatory authority and customers in each country. due to criteria defined by these entities and compliance to the corresponding contractual frameworks.
In 2017, electricity sales of Enel Generación Chile and its subsidiaries reached 23,356 GWh, which represents a 34% share of total sales on the National Electricity System (SEN in its Spanish acronym) including sales to customers and net sales on the spot market.
114 Annual Report Enel Chile 2017 Enel Generación Chile Operational and Subsidiaries’ installed capacity, generation and and energy sales commercial
Installed capacity (MW) (1) 2016 2017 Enel Generación Chile 3,757 3,757 scenario Pehuenche S.A. 699 699 Celta S.A. (3) 1,115 1,115 GasAtacama 781 781 Total 6,351 6,351 General view of Generation (2) 2016 2017 the operational and Enel Generación Chile 11,538 10,859 Pehuenche S.A. 2,369 2,443 commercial scenario Celta S.A. (3) 2,429 - GasAtacama (3) 1,229 3,655 The hydrology in the SIC was, on average, better than 2016 Total 17,564 17,073 (one of the driest in statistical history) but maintained the dry trend present over the last nine consecutive years Sales 2016 2017 since 2010, experiencing only some relief in 2014, 2015 and Sales to end customers Enel Generación Chile 21,105 20,924 towards the end of 2017. This led to an increase in the hy- Pehuenche S.A. 340 344 droelectric contribution to the system when compared to Celta S.A. (3) 930 - 2016, and a slight reduction in thermal generation dispatch. GasAtacama (3) 463 1,347 Ventas mercado spot 852 742 Generation costs were, on average, higher during the first Total 23,689 23,356 semester and gradually declined during the second semes- ter and more significantly during the last quarter, because (1) These figures result from the maximum capacities determined by Enel Generación Chile’s Operational Norm No 38 “Regulation hydrology intensified towards the last quarter of 2017 and for defining maximum capacity in the hydroelectric and thermal fuel prices increased when compared to 2016. A moderate plants of Enel Generación Chile”, as of December 31 each year. They are the maximum design capacity of the generating units. increase in consumption, which was 2.4% in the SIC, and corroborated with contractual satisfaction guaranteed tests made by the manufacturer of the generating equipment, in most cases. the greater generation of renewable solar and wind power In some cases, the figures of maximum capacity may differ from contributed to containing generation costs. The renewable the capacity declared to the regulatory authority and customers in each country due to criteria defined by these entities and solar and wind generation capacity increased 1,460 MW in compliance to the corresponding contractual frameworks. 2017, which represents a 91% increase when compared to (2) Refers to total generation after deducting own consumption and transmission losses. the solar and wind capacity that was added to the system (3) Celta S.A. was absorbed by GasAtacama Chile S.A. on November in 2016. 1, 2016.
Enel Generación Chile increased its hydroelectric contribu- tion following the trend in the SIC, but maintained its level of thermal generation when compared to 2016. Coal fueled power plants, Bocamina I and II, reduced generation, but were compensated by greater natural gas fueled genera- tion.
Electricity Generation 115 The integration of the SIC and SING began in November A total 24 generation companies presented offers, a high 2017 with the start-up of operations of a 1,500 MW trans- number of participants, reaching an aggregate 20,700 mission line extending 3,100 km. that allows integrating GWh/yr., slightly more than nine times the energy ten- the production and consumption of the country’s two most dered, which reflects a high level of competition in this bid important electricity systems. This integration will become , which was also the case in previous bids. more significant in 2018 when the works still under con- struction conclude. The interconnection offers a joint pro- As a result of the tender, the total (2,200 GWh/yr) sup- duction amounting to 74 TWh/yr and annual sales amount- ply tendered was awarded to 5 companies at a weighted ing to 71 TWh/yr, of which the SIC represents 75%. The average 32.5 US/MWh to be effective in the future. This main implications are: price was significantly lower than the price of previous ten- ders. The 2016 tender awarded a total 12,430 GWh/yr. at a i) Greater supply reliability by allowing to exchange weighted average 47.6US$/MWh that will be effective in (bi-directional flow) generation between a system 2022, and the 2015 tender awarded three blocks for a total with a high concentration of hydroelectricity (SIC) and 1,200 GWh/yr. at an average 79.3US$/MWh (effective in a system that is completely thermal (SING). 2021). Enel Generación Chile was at the top of the win- ning company list of the 2017 bid for being awarded 54% ii) Advantages to develop and operate renewable gener- (1,180 GWh/yr.) of the bid, followed by renewable energy ation projects, primarily solar and wind. companies: Energía Renovable Verano Tres SpA award- ed 25% of the tender (540 GWh/yr.), Atacama Solar S.A. iii) Integration of two markets that are significant in terms awarded 10% (20 GWh/yr.), Cox Energía SpA awarded 6% of sales but different in terms of typology (large num- (120 GWh/yr.) and Atacama Energy Holdings S.A. awarded ber of regulated customers in the SIC and nonregu- 5% (120 GWh). lated and mining customers in the SING). This rep- resents a significant source of business opportunities Given the level of competition and the lower prices of the for Enel Generación Chile, to develop projects, and to previous supply tenders, Enel Generación performed a provide operational and commercial management ser- very thorough and extensive analysis of market conditions vices. to present a competitive offer (price and energy blocks) in the 2017 tender process and also obtain an attractive future profit margin (20 years beginning in 2024). Consequently, the offer presented was based on very low cost solar and wind renewable generation technologies, backed up by the existing diversified generation portfolio and consistent with Main events that the Company’s previously signed supply commitments. affected operational and As a result, we were awarded more than half of the tender at an average 34.7 US$/MWh to become effective in 2024, commercial performance a price that is higher than the total bid price average equal In the commercial front, Enel Generación Chile repeated to 32.5 USS/MWh. These price levels reflect the market its successful participation in the power supply bid for conditions to be in place in the future, when the respective distribution companies. The Company was awarded more contracts come into effect (2024 in this case). There is a than half (54%) of the 2,200 GWh/yr. tendered in the 2017 clear trend in the industry to operate with renewable ener- process as the result of an agreement with Enel Green gy with very low generation costs that allow Enel Gener- Power. The supply contracts signed have a 20-year term ación Chile to forecast attractive margins for the electricity beginning in 2024. supply already awarded. Enel is actively participating in the development and operation of renewable projects, which is The 2017-1 tender auctioned hourly blocks for 1,700 GWh/ facilitated by the integration of the SIC and SING because yr. and seasonal blocks (quarterly) for 500 GWh/yr, to reach it allows the use of renewable resources available in north- a total 2,200 GWh/yr. and concluded in November 2017. ern Chile.
116 Annual Report Enel Chile 2017 On November 16, 2017, the Ministry of Public Works and ii) Generation facilities are managed focusing on high Enel Generación Chile signed the Laja Reservoir Operation quality, availability and sustainability goals, which re- and Maintenance Agreement that supplements the Agree- quire operational procedures and maintenance and ment signed in 1958. The agreement was accomplished modernization programs that fully comply with tech- after four years of studies and dialogue with the different nical and environmental standards established by the parties that use the water from the Laja basin. It was also electricity and environmental rules and regulations. signed by the communities and authorities involved. It in- cludes the following main commitments: iii) The commercial policy is defined to be consistent with the production characteristics of the Company’s pow- i) Secure water requirements of farmers in the area, giv- er plants and is permanently adjusted to the increas- ing them priority to use the water when the level of ingly competitive and changing market conditions. The the reservoir is low, which is also used for generation. goal of such policy has been to combine achieving an attractive return with a low exposure to production and ii) Maintain the level of water required for the Laja Falls, market risk. a well-known tourist attraction in the area, to maintain its beauty. The production and market risk relate mainly to the follow- ing: iii) Increase flexibility in the use of the annual water vol- ume to manage it more efficiently, based on irrigation i) Hydrology variability, a risk that is permanently re- and generation needs. duced by analyzing and designing sales contracts that commit to an optimum level of energy sales. This agreement is extremely significant because it nor- malizes the use and operations of the water in this basin, ii) Commodity variability risk, mainly the price of fuels putting an end to recurrent conflicts and lawsuits that took that directly affect thermal production costs. place in drought periods and were being solved with tem- porary solutions that did not allow the parties involved to iii) Currency variability risk, mainly the price of the United plan and manage their use of this water efficiently. States dollar that has an impact on the revenue of the Company. This risk has been managed successfully by The events previously mentioned reflect the Company’s our parent company in Italy using financial instruments solid position to reach very high levels of operational and that have provided important revenue to our Company. commercial performance as a consequence of the follow- ing strengths that deserve to be highlighted: It is important to highlight the natural gas supply agree- ment with Nueva Renca power plant, owned by AES Ge- i) Significant and technologically diversified generation ner. This agreement allowed the natural gas available to capacity, mainly comprised of efficient hydroelectric Enel Generación to be used by Nueva Renca in 2017, and and thermal plants, which allow the company to be consequently optimize natural gas electricity generation very competitive and generate at low average operat- and manage production risk and margins. ing costs.
Electricity Generation 117 increase when compared to the previous year. Electrici- ty generation from solar and wind renewable sources in- Hydrologic condition creased a significant 45% when compared to 2016, repre- in the SIC senting almost 10% of the system’s total generation.
Regarding thermal generation, coal maintained its leading Hydroelectricity represents a significant portion of Enel position representing 26% of total SIC generation, but low- Generación Chile´s generation mix and therefore it influ- er than the 31% share in 2016. LNG followed with 19% ences operational and commercial matters making hydro- of total generation, similar to the year before. Generation logic conditions relevant to the Company. Although 2017 with diesel and biomass slightly declined from 6% to 5% was moderately less dry than 2016, hydrology was quite of total generation. irregular when compared to the rainfall and water availabil- ity expected for a typical year. The year began with a very Electricity generation of Enel Generación Chile in the SIC dry ice melt season and this dry condition continued until reached 16.5 TWh, which represents a 31% share of the September, and rainfall was below expectations during the SIC’s total generation, slightly less than the 32% share in winter months. Rainfall increased during the last quarter 2016. Hydroelectricity amounted to 9.7 TWh, 18% of the of the year, reversing the dry trend present in previous SIC’s total, compared to 17% in 2016. Thermal electrici- months and ending the year with a level of hydrology above ty generation of Enel Generación Chile reached 6.7 TWh, the level in 2016. When compared to 2016, the first two 12% of the SIC’s total and lower than the 7.4 TWh generat- quarters of the year were slightly drier with very high aver- ed in 2016. Bocamina power plant coal generation fell from age accumulated exceedance probability of rivers, roughly 3.0 TWh in 2016 to 2.3 TWh in 2017. Far behind comes wind 96% and 85% respectively. This dry condition remained generation reaching 0.1 TWh (0.2% of the total) and fuel oil stable during the third quarter of 2017, at 86% exceedance generation with 0.06 TWh. probability, which resulted in a lower recovery of season- al reservoir levels. The last quarter of the year, spring, the Enel Generación Chile maintained its leadership position snow melting season, was quite favorable, consistent in hydroelectricity reaching 45% of total hydro generation with an “average” exceedance probability of roughly 51%, (48% in 2016) and also made a significant LNG generation which led to a significant recovery of reservoir levels and contribution to the system, representing 45% of total LNG turning 2017 into a year that was moderately less dry than generation. Regarding LNG, the agreement signed with 2016 with a 78% total accumulated exceedance probability AES Gener previously mentioned, allowed the Nueva Ren- compared to 93% in 2016.” ca power plant to generate about 1.7 TWh during 2017, pos- itively adding to the commercial margin of both companies.
During 2017, the average price of fuels increased when compared to 2016. Coal was the predominant fuel in elec- tricity generation and its price increased a significant 42% Generation and electricity from an average 82 US$/ton in 2016 to roughly 117 US$/ton supply costs of the SIC in 2017. Regarding the price of LNG, although the purchase prices of Enel Generación Chile are confidential, according to information provided by the electricity authority, the av- Hydrology of 2017, when compared to 2016, was less dry erage price increased 19% from 2.49 US$/MMBTU in 2016 and therefore resulted in lower thermal generation than to 2.97 US$/MMBTU in 2017. Liquid fuel as an electricity in 2016. Energy supplied by the SIC reached 54.9 TWh of generation source was used very little for electricity gen- which 51% was thermal, lower than the 57% in 2016 and eration in the SIC. Average prices of liquid fuels increased equivalent to a 10% reduction. Hydroelectricity increased significantly, diesel 23% and fuel oil 42%. from 36% in 2016 to 39% in 2017, representing a 12.5%
118 Annual Report Enel Chile 2017 Despite the increase in the price of fuel mentioned, the purchased in the spot market was key to compensate for average price of electricity in 2017 was similar to 2016. the lower level of hydroelectricity available due to the ex- The average annual spot market price of energy at the Alto tremely dry conditions during the year. Jahuel node (220 kV), which is representative of the con- sumption in the metropolitan area, declined slightly (3%) The rental contracts signed in 2017 with AES-Gener regard- from 60 US$/MMBTU in 2016 to 58.4 US$/MMBTU in ing the Nueva Renca thermoelectric power plant allowed 2017, without pronounced variations throughout the year. this unit to supply the SIC with natural gas fueled electric- Average prices increased moderately (7%) during the first ity in addition to San Isidro and Quintero plants. Total gen- semester when compared to the same semester of the eration of Enel Generación Chile using natural gas (includ- previous year, and declined significantly (-15%) during the ing operations of Nueva Renca) was 6.0 TWh throughout last two quarters, meaning that the greater cost of thermal the year, which represented 10.9% of the SIC’s total annual generation was compensated by the greater contribution generation, 5% more than in 2016. of hydroelectric generation and renewable energies with a variable cost equal to zero. During the first quarter of 2017, Enel Generación Chile par- tially unloaded the first LNG shipment transported from the Quintero terminal to the Mejillones terminal since both power plants began operations. This allowed providing a greater amount of LNG to the central region to face the The relevance of liquefied existing drought conditions. natural gas (LNG) In terms of LNG trading activities, there were no significant events during 2017. Enel Generación Chile entered the LNG market in 2009 when the GNL Quintero Regasification Terminal began Enel Generación Chile sold three LNG shipments, includ- operations, which was a project of national interest that ing the sale of two shipments of LNG to Enel Trade to be required a significant public and private effort to ensure the delivered in the United Kingdom. This was the first interna- country a supply of natural gas since the Argentine supply tional trading transaction outside Latin America related to had been interrupted. the BG contract. Also, the Company, along with ENAP and Agesa (compa- Metrogas, Enap and Enel Generación Chile, jointly promot- ny related to Metrogas) reached a new export agreement ed the development of the GNL Quintero Terminal, a facility Enarsa (with Empresa Nacional de Energia Argentina), to that has played a crucial role in the supply of energy to export natural gas from the Quintero terminal to Argentina. the central region of Chile for both residential and industrial Natural gas exported amounted to 277 million cubic me- customers and also for the electricity system as a whole. ters. Enel Generación Chile contributed with 32% of such amount. In 2017, Enel Generación Chile sold its entire 42.5% owner- ship share of Electrogas to Aerio Chile, a subsidiary of the In 2017, the Company once again signed a terminal use Portuguese company REN-Redes Energeticas Nacionais agreement, TUA, with GNL Mejillones that allowed unload- for US$ 180 million. This sales contract does not affect the ing an LNG shipment. This transaction allowed renewing use of Electrogas´ pipeline to transport the gas required by natural gas sales contracts with mining and industrial cus- Enel to supply electricity generation power plants. tomers located in northern Chile making Enel Generación Chile the main industrial gas trader in northern Chile. It also In terms of electricity operations, the availability of LNG makes natural gas available for the generation units of Enel provided by the long-term supply contract with BG Global Generación Chile (Taltal and GasAtacama) connected to Energy Ltd (BG) in addition to the two shipments of LNG the northern gas pipeline network.
Electricity Generation 119 The main satellite regasification plant built to this date, The main actions carried out are described below. located in Teno, began operations in 2017 and is supplied with Enel Generación Chile LNG transported in trucks. New electricity supply contracts were signed with import- ant industrial customers, such as: Occidental Chemical During 2017, the Quintero terminal unloaded 50 shipments Chile Ltda. (170 GWh/yr. for 10 years) and CMPC (606 GWh/ of natural gas, a total 3,947 MMm3. Of that amount 1,451 yr. for 10 years). Important contracts were also signed with MMm3 were for Enel Generación Chile, to satisfy its com- distribution companies to supply their nonregulated cus- mercialization and electricity generation requirements. tomers, such as: SAESA, 280 GWh/yr. for 5 years; Chilquin- Roughly 720 MMm3 of gas belonging to other partners of ta ,170 GWh/yr. for 5 years; CGE Group, 230 GWh/yr. for 4 the terminal, were sold to other generators connected to years; and Enel Distribución ,600 GWh/yr. for 9 years. the SIC to generate electricity. As a result of the changing trends in the electricity industry Enel Generación Chile continued consolidating as a rele- in Chile, Enel Generación Chile signed supply contracts in vant player in the gas market in Chile in 2017, expanding its 2017 with approximately 100 nonregulated customers for activities in the commercialization of gas and LNG in the a total 500 GWh/yr. for 5 years. These are groups of new local and international market. smaller customers that decided to become nonregulated customers after being regulated customers, as allowed by current electricity industry regulation.
In August 2016, the results of the electricity supply bid LIC2015/01 for regulated customers in Chile was an- In the nounced. Enel Generación Chile was awarded approxi- mately 5,900 GWh/yr for a 20-year period between 2022 commercial and 2041. This process continued during 2017, formalizing 26 contracts, which involved reviewing and signing the supply contracts with all the distribution companies in front Chile that participated in the bid.
In November 2017, the results of the electricity supply The commercial actions carried out by Enel Generación bidding 2017/01 for regulated customers in Chile was an- Chile in 2017 were consistent with its commercial policy. nounced. Enel Generación Chile was awarded approxi- The commercial policy focuses on the following objectives: mately 1,180 GWh/yr. for a 20-year period beginning in Jan- maintain industry leadership; adequately manage risk and uary 2024. Within this context, the customer management return under the existing supply and competitive market area of Enel Generación Chile has continued the subscrip- conditions; implement plans to strengthen customer loyal- tion process with the distribution companies and the CNE ty, add additional new customers and increase commercial that is expected to conclude in 2018. The process involves management efficiency within the company. writing up the contacts and reviewing the required docu- mentation to sign over twenty supply contracts resulting from the electricity tender.
120 Annual Report Enel Chile 2017 capacity of approximately 150 MW, using 2 vertical axle Enel Pelton units that will utilize water from the Maule lagoon reservoir. The plant will be connected to the national elec- tricity network by an 87 km transmission line to the Ancoa Generación substation. Chile projects The environmental qualification resolutions required for the power plant and the transmission line were obtained in 2011 and 2012 respectively. In 2014, the hydraulic works under plan of the project was approved. construction By the end of 2017, the physical progress of the project was 61%, the excavation of the tunnel reached 7.2 km, the civil works of the underground powerhouse cavern had and concluded and the installation of electromechanical equip- ment was in progress. Regarding the transmission lines, optimization 60% of the structure was assembled and 4.6 km of cable have been installed.
The total investment accrued as of December 31, 2017 was Ch$ 274,958 million. Based on the information available up Los Cóndores project to the date of this report, the investment is estimated to exceed the nominal amount approved for the development and construction stage, in 20% to 25%. The power plant is The Los Cóndores hydroelectric power plant project is expected to begin operations during the second semester located in the San Clemente district, in the Maule basin of 2020. and Maule region. The project involves the construction of a pass-through hydroelectric power plant with installed
Electricity Generation 121 Optimization of Tarapacá DeSox & Bocamina´s second unit DeNOx environmental equipment project Bocamina is a coal fired generation power plant located in the Coronel district (Concepción. southern Chile) com- The Tarapacá power plant is a 158 MW coal fired thermal prised of two units, 128 MW and 350MW. unit whose average annual generation is 1,100 GWh, and is connected to the Northern Interconnected System (SING). Bocamina unit 2 began commercial operations in October
2012, but was interrupted in December 2013 due to a judi- On June 23, 2011, DS 13 was issued to regulate the emis- cial order issued by the Concepcion Court. sions of thermal power plants, forcing the reduction of SO2 and NOx emissions by June 23, 2016. This rule im- Enel Generación Chile submitted a new environmental im- plied adapting the Tarapacá power plant to comply with the pact study (EIA in its Spanish acronym) in December 2013, decree by installing a desulphurization system (DeSox) and proposing a technical optimization plan. The EIA was ap- adopting methods to reduce NOx emissions (DeNOx). proved on March 16, 2015 and obtained the RCA approval on April 2, 2015. Main progress achieved in 2017:
The plan involves performing the following works: • Since December 15, 2016 the power plant became available to operate commercially and is mitigating its • Installation of Johnson filters to both units to mitigate environmental impact. the suction of microbiological organisms. • Installation of a geodesic structure on the north and • During 2017 the works pending were concluded and south coal fields. the principal contracts related to the project were • Improvement of the landfill for ashes. closed. • Evaluation of a new landfill for ashes. • Installing a rainwater treatment plant. The estimated total investment is Ch$ 68,240 million, of which Ch$ 67,696 million was accrued as of December 31, Main progress achieved in 2017 was the following: 2 0 1 7.
• The Municipal Works Department (DOM in its Spanish acronym) of Coronel approved the dome built on the north coal field on July 12, 2017, and it became opera- tional on July 17. • The construction permit of the dome for the south coal field was granted by the Coronel DOM on January 27, 2017. • The installation of the metallic structure on the south coal field concluded on December 21, 2017, 62 days before the programmed date. The construction is ex- pected to conclude in 2018.
The total estimated investment is Ch$ 62,026 million. As of December 31, 2017, a total Ch$ 53,695 million had been disbursed.
122 Annual Report Enel Chile 2017 Enel Chile Taltal optimization project projects under The project is located in the Antofagasta Region. It is an energy efficiency project that uses the heat generated by evaluation the existing gas turbines to produce steam. This is done by installing a steam turbine and its generator, which allow converting the existing Taltal open cycle plant into a gas- fired combined-cycle plant. Neltume and Choshuenco Hydroelectric Project In December 2013, an Environmental Impact Declaration (“DIA” in its Spanish acronym) of the optimization project was submitted to the authority and was approved in Jan- In January 2018, after a very comprehensive analysis, the uary 2017. Board of Directors of Enel Generación informed their de- cision to abandon the Neltume and Choshuenco projects Any decision related to the construction of this project will located in the Region de Los Rios and booked a Ch$ 25,106 depend, among other things, on the commercial opportuni- million loss, which affected fiscal year 2017 results. The ties envisioned for the following years, such as, the prices water rights for these projects were returned to the state. of future tenders to supply the electricity required by the regulated market and/or existing or new nonregulated cus- tomers.
Electricity Generation 123 Hydroelectric Quintero combined Project Vallecito cycle project
The project is located in the Maule Region, specifically on The project is located in the Valparaiso Region. It is an en- the upper basin of the Maule River. It is a pass through ergy efficiency project that will use the heat generated by hydroelectric power plant with nearly 55 MW installed the existing gas turbines to produce steam. This is done capacity. The energy it produces is to be supplied to the by installing a steam turbine and its generator, which al- Interconnected System using the line that is currently in low converting the existing open cycle Quintero plant into construction to evacuate electricity from the Los Cóndores a gas-fired combined cycle. Hydroelectric power plant. During 2017, the company continued working on the en- Since 2015, Vallecito has been developed based on sus- vironmental impact study and the implementation of the tainable criteria, which consists of defining the technical, sustainability plan. economic, environmental and social aspects of the proj- ect considering high sustainability standards. This project The final investment decision regarding this project will de- has included community collaboration processes that have pend, among other things, on the commercial opportunities contributed to a shared vision of the territory, and to identi- foreseen for the following years, such as, the prices of fu- fy the activities to be carried out in each of nine communi- ture tenders to supply the electricity required by the regulat- ties of the Pehuenche Route. ed market and/or existing or new nonregulated customers.
The basic engineering studies were carried out in 2017, the environmental campaigns concluded and the imple- mentation of the sustainable development plan began by supporting the activities defined as a shared vision for the Ttanti Combined territory. Cycle Project Based on the commercial opportunities envisioned for Vallecito, the next step will be the preparation of the en- The Ttanti project is to be developed in the Antofagasta vironmental studies to present to the authority, once the Region, on land adjacent to the existing Atacama power design of the project, defined along with the community, plant that is located in the industrial zone of the city of Me- has concluded. jillones. The project involves the construction of a natural gas combined-cycle power plant with an installed capacity of 1,290 MW (three units with 430 MW each).
On December 28, 2017, the Environmental Evaluation Commission of the Antofagasta Region voted in favor of the power plant’s environmental approval.
Any decision related to the construction of the project will depend, among others, on the commercial opportunities foreseen in the upcoming years, e.g., prices in future ten- ders for supplying the energy requirements of the regulat- ed market and/or negotiations with existing or new unreg- ulated customers.
124 Annual Report Enel Chile 2017 Tarapacá Battery Energy Land reserved for Storage System future projects
Enel Generación Chile is analyzing the installation of a bat- As of December 2017, Enel Generación Chile has approxi- tery energy storage system (BESS) to the Tarapacá thermal mately 48.3 hectares of immovable property (land) to devel- power plant to provide the ancillary services that the Na- op natural gas fired thermal plants and hydroelectric plants. tional Electricity System could require in upcoming years. These assets are located in the Antofagasta Region (6.3 hectares) and the Los Lagos Region (42 hectares). The project involves the installation of a BESS with about 14 MW of installed capacity and 7 MWh of energy stor- age capacity, connected to the 11.5 kV bar of the existing 23 MW turbine installed in the Tarapacá thermal power plant.
In December 2017, the Environmental Impact Agency (SEA in its Spanish acronym) of the Tarapacá Region issued a resolution waiving the obligation to submit the project to environmental assessment before its construction. De- spite this fact, any decision related to the construction of the project will depend, among others, on the commercial opportunities foreseen in the upcoming years and, particu- larly, on the evolution of the regulatory framework for the provision and remuneration of the ancillary services.
Electricity Generation 125 18 Electricity distribution
126 Annual Report Enel Chile 2017 Letter from the Chairman 127 Enel Chile participates in the distribution business through 2015, the CNE issued R.E. 699 that informs, among other its subsidiary Enel Distribución Chile. Enel Chile’s has a matters, the terms of the “Costs Study of Electricity Dis- 99.1% direct interest in Enel Distribución Chile. tribution-Related Services” as part of the 2016-2020 tariff setting process. The terms identify five new electricity dis- Enel Distribución Chile’s concession is a high-density con- tribution-related services of which the most significant are sumption area. It concentrates a large proportion of the “Construction and installment of temporary junctions” and country’s population, businesses parks, industrial parks, “Lease of temporary junctions”. small industry and commercial activities. The “Final Electricity Distribution-Related Services Cost Other electricity distribution Groups that participate in the Study Report” was published on January 20, 2017. As electrical system are: Chilquinta Energía, CGE Distribución, determined by the established process, Enel Distribución Sociedad Austral de Electricidad and Empresa Eléctrica de Chile presented its observations on the Report. la Frontera. Later, the CNE approved the Technical Report entitled “Tar- iff Formulas of Non-Electricity Supply Services, related to Electricity Distribution” through Exempt Resolution 213 dated April 27, 2017. To the date of this report, the tariff Enel decree with the new tariffs is pending. Enel Distribución Chile also presented its observations on this Report, as es- Distribución tablished by the rules of the process.
As of this date, the decree to set the new tariffs has not Chile been published.
Enel Distribución Chile is the largest electricity distribution company in Chile in terms of electric energy sales. It oper- ates in 33 districts of the Metropolitan Region and its con- cession area covers more than 2,105 square kilometers, Infrastructure and including the areas covered by its subsidiaries Empresa network projects Eléctrica de Colina Ltda. and Luz Andes Ltda.
In 2017, the Company provided electricity to 1,882,394 Smart Meters Project customers, 3.1% more than in 2016. Of total customers, 89.6% are residential customers, 7.7% are commercial The Enel group has more than 40,000 smart meters in customers, 0.7% are industrial customers and 2.0% are operation, especially in Italy and Spain. This smart meter other customers. During 2017, Enel Distribución Chile sold solution involves new meters, data concentrators, tele- 16,438 GWh to its final customers, which represents a communications infrastructure and centralized systems 3.2% increase when compared to 2016. that allow remote and automated (reading, disconnections, reconnections, and tariff changes) management of meters Enel Distribución Chile successfully fulfilled its Losses Plan through a two-way information flow. It also allows custom- for 2017, developed and implemented to keep losses at ers to install solar panels and inject their surplus energy economically acceptable levels. As of December, the TAM into the distribution network without the need of any addi- indicator was 5.1%. tional equipment.
Distribution tariffs are set every four years based on cost The first phase of the Smart Meter Massification Project studies conducted by specialized consulting firms. In late has been developed successfully since August 2017. It con-
128 Annual Report Enel Chile 2017 sidered replacing 40,000 meters throughout 11 districts of our concession area (Santiago, Las Condes, Providencia, La Cisterna, Estación Central, Nuñoa, Maipú, La florida, Energy efficiency projects Vitacura, La Reina, y Lo Barnechea). A team of in house and outsourced employees was formed and have installed 45,628 Smart Meters and 451 data concentrators in 2017, Full Electric reaching more than 100,000 Smart Meters installed during 2016 and 2017 in Santiago. This enables performing more In 2017, Enel Distribución Chile continued developing proj- than one million remote operations a year. ects with equipment for Full Electric buildings and Energy Efficienct Buildings and consolidating its position in the market.
It is worth noting that these businesses are an important Solar energy projects contribution to the sale of value-added services, since they provide an important contribution of electric installed ca- pacitydisplacing combustible energies, and also consoli- Solar photovoltaic date Enel Distribución as a leader in the country in solu- tions regrading renewable energy and energy efficiency.
In 2017, we defined and developed photovoltaic products Enel Distribución Chile has consolidated its position in the for residential use, which along with a strategy defined renewable energy market, with efficiency, profitability, and with our employees, allowed us to become leaders in our providing high value innovative solutions. concession area exceeding a 60% share of the solar photo- voltaic market. One of our goals for 2018 will be to expand “Full Electric” projects refers to the use of only electric our presence outside our concession area. The office we equipment in an apartment, using high tech, efficient de- opened in Concepcion contributes to this goal. vices. “Full Electric” apartments include kitchen applianc- es, hot water solutions and heating systems. Our success in the residential segment and our eagerness to continue developing this industry has led us to develop During 2017, “Full Electric” apartments represented 37% products for Small and Medium Sized Companies (“PYME” of the new apartments built in Santiago. Consequently, at in its Spanish acronym). This sector demands more energy December 2017, approximately 117,972 apartments in the and are clearly interested in these products. We therefore country´s Metropolitan Region are full electric, mainly in developed 5, 7, and 10 kWp three-phase kits to add to our the central and east districts. photovoltaic product line.
We have also developed a 500 Wp kit (may be increased to 3 kWp) to be installed by us following the same procedure applicable to the rest of our products. We are confident that this kit will allow other types of customers to have ac- cess to this technology thanks to the financing options we offer our customers to purchase these products.
In addition, we have installed more than 110 photovoltaic systems for residential customers and PYMEs within the framework of the Distributed Electricity Generation Law 20,571, which represents an important milestone in the massification of this type of technology.
Electricity Distribution 129 Energy efficiency projects for hospitals Projects that were expanded in 2017 Enel Distribución Chile was awarded three highly complex hospital projects through the tender organized by the Chil- The #LUZ project was successfully implemented in 2016 ean energy efficiency agency, (ACHEE in its Spanish acro- at the company level and was therefore expanded in 2017. nym). These projects involved the construction of thermal power plants as requested by each hospital. This is a self-service emergency service through social networks for customers that works by typing “#Luz” on The Hospital in Castro and the Regional Hospital Dr. Guill- Twitter or Facebook. Once the message is received, the ermo Grant Benavente in Concepcion, and the Concepción platform activates an automatic response and confirms the Hospital. This represented approximately Ch$878 million customer number, address, telephone number and cus- in revenue. tomer service status (programmed service interruption, disconnection due to nonpayment or other situations in the Enel grid), and if necessary, will generate a service order to be attended by a field technician, by integrating with Sales Innovation projects Force.
The process works through Chattigo, the startup selected Employee program in 2015 by Enel Distribución´s “Energy Start” program.
In May 2017, the largest fleet of 100% electric cars in Latin America was delivered to Enel Chile employees. This pro- Chispers gram offered employees the opportunity to apply for either Nissan, Hyundai or BMW cutting edge electric vehicles. The Chispers project evolved implementing technical de- More than 65 applications were received, which exceeded velopments and commercial events in 2017. the 30 available. A development plan was executed improving functional- After 7 months and over 300,000 kilometers of use, em- ity, the installation system and adding new formats. The ployees qualify the overall experience as very positive, so application was improved by, trading Chispers for Likes in that, we believe the second version, to be carried out in Facebook and adding tutorials; and developing manage- 2018, will also be a success. ment capabilities in the backend platform (dashboard with operation status of stores, report automation and status The implementation of this program in 2018 will consol- alerts). A new design of the charging location was devel- idate Enel as a leader in electric mobility in the country oped for a new transportation format, with a systematic and a strategic partner of the automotive brands that have installation process. This new design was adapted to the begun offering vehicles that are 100% electric. traditional installation format used at shopping malls and for the HORECA segment.
From the commercial standpoint, in 2017 the Chispers team was involved in adding a total 120 new locations at 30 university campuses, and also installed additional locations in Los Dominicos Shopping Mall, Bar Las Tejas and Café If.
130 Annual Report Enel Chile 2017 Electric Transantiago Regarding operations, the costs for the transportation company are 70% lower than conventional buses, costing Ch$70 per kilometer compared to Ch$ 300 for diesel ve- The first two 100% electric buses began operations as part hicles. of the Transantiago fleet of the 516 Metbus route on Tues- day, November 14, benefitting eight districts in Santiago. These buses have a charging system, installed by Enel, that has the capacity to cover 250 kilometers after charging The vehicles provided by Enel under a leasing contract are for two to three hours. BYD and may accommodate 81 passengers. The seats are padded, there is air conditioning, wifi, USB cellular char- gers, and a safe and separate cabin for the driver.
The business model offered by Enel to Metbus consists of a monthly fee that includes the bus, energy and charging infrastructure. Maintenance is provided directly by the manufacturer of the bus to Metbus.
Electricity Distribution 131 19 Environment and sustainability
132 Annual Report Enel Chile 2017 Letter from the Chairman 133 allows satisfying the requirements of D.S. 43/2016 issued Environmental by the Ministry of Health. The new Hazardous Waste Man- agement Plan for the Maule power plants was approved by the Health authority, which allows satisfying the require- management ments of D.S. 148 “Health Regulation on Hazardous Waste Management” (Seremi de Salud Res 0764). highlights Regarding the commitments related to the RCA of the Ral- co hydroelectric power plant, 2017 highlights are the fol- lowing:
Regarding the San Isidro thermal power plant, during 2017 • In January, Enel Generación Chile and Universidad de a new flow rate available for dilution to discharge into the Concepcion implemented the reforestation plan to plant river was approved and new alternative wells to supply wa- a total 700 hectares with native trees as part of the Ral- ter to the plant were identified. On December 20, 2017, co power plant construction mitigation program. Several the General Water Authority (DGA in its Spanish acronym) members of the indigenous community of the Bio Bio authorized changing the location of the underground water and Araucania Region were trained to collect the seeds intake, providing the power plant with flexibility regarding of the native trees. fresh water supply. On that same day, the DGA approved the request presented by Enel Generación Chile to in- • The activities to recuperate the lots used as dumps and crease the months available for dilution, which also adds deposits during the construction of the Ralco power flexibility to comply with the discharge limits of waste to plant began in January. The goal is to recuperate the land the Aconcagua River. by planting native trees.
Regarding progress in environmental management of ther- • In March, Enel Generación Chile officially handed over mal plant Bocamina, on June 5, 2017, the construction of the cemetery to the El Barco community. The Bio Bio re- the roof on the north coal field was approved and the con- gional director of the National Indigenous Development struction of the roof on the south coal field began. Also Corporation, (Conadi in its Spanish acronym) performed worth mentioning is Bocamina´s pilot project of real time the honor. Building this cemetery was a commitment of data transmission to the Superintendence of the Environ- Enel Generación Chile related to the construction of the ment (SMA in its Spanish acronym)). Bocamna is the first Ralco Power plant. power plant to make this connection in the country. In 2017, the environmental authority also resolved in favor • In March, a thematic map identifying the location of her- of the questions we submitted to the SEIA relative to new itage sites in the district was presented to the mayor of locations for Bocamina to dispose of coal ashes. This pro- the Alto Bio Bio district, Nivaldo Piñaleo, to be exhibited vides flexibility in managing coal ashes avoiding the need in the local museum. Three thousand brochures written to build a new landfill. in three languages (English, Spanish and Chedungun) As part of the Environmental and Social Recovery Program were also donated to promote these sites. This activity of Coronel (CRAS Coronel), the company, with the com- is part of the project “Identifying and Protecting Heritage munity, regional authorities and other companies defined Sites”, which Is one of the five compensatory measures a plan of environmental and social measures to be perma- defined by the environmental authority in 2006. nently developed in the district. With regard to the environmental management activities • The construction of the Lonquimay Bridge, one of the of the hydroelectric power plant´s Action Plan, the con- compensatory measures related to the construction of struction of the new storage room to store hazardous sub- the Ralco Power plant, concluded in April. It is the access stances at the Laja power plants was completed, which to the New Barrio community in Lonquimay.
134 Annual Report Enel Chile 2017 • Within the context of Ralco’s RCA, the implementation proposal of the Long-Term Development Plan for the Ayin Mapu and El Barco communities that were relo- Green taxes cated was prepared in 2016. The proposal was defined The SMA approved the proposed methodology to quantify by the members of the communities, and their leaders emissions the entire thermal park of Enel Generación and through workshops in which they Identified their Inter- its subsidiary GasAtacama, as defined by resolutions of the ests, and opportunities for Improvement, by defining the Superintendence. During 2017, the power plants reported activities and projects they expect to begin developing in their emissions based on the approved methodology and 2 0 1 7. taxes for 2017 will be paid in 2018 based on such reports.
Compliance with New projects thermoelectric power plant emission standard The hydroelectric power plant Pehuenche was chosen as the “Sustainable Pilot Power Plant”. This initiative seeks to develop projects with shared value that additionally con- The thermoelectric park of Enel Generación Chile and its tribute to the operational efficiency of the plants. subsidiary GasAtacama continue working to comply with the latest versions of protocols and guidelines defined by On January 17, 2017, the Evaluation Commission of the D.S 13/11 issued by the Superintendence of the Environ- Antofagasta Region approved the DIA of the Optimization ment. Project to transform the TalTal power plant into a combined cycle that began in December 2013. The Environmental In July 2017, the SMA published the reports verifying com- Qualification Resolution was Res. Ex. 24/2017. pliance with the limits established by D.S No 13/11 based on the quarterly reports uploaded by each power plant to On December 28, 2017, the Evaluation Commission of An- the SMA´s “Thermal Power Plant” website. The SMA ver- tofagasta approved the Environmental Impact Study of the ified that all Electricity Generation Units (UGE in its Span- Ttanti Thermal power plant (1,290 MW combined cycle lo- ish acronym) of the company complied with the emissions cated in Mejillones). The Environmental Qualification Reso- limits. lution 13/2018 was issued on January 11, 2018.
Environment and Sustainability 135 On December 27, 2017, the SEA of the Tarapacá Region gency channel for such customers, on and off line, and a issued Resolution 90 stating that the project “Bess Ener- specialized service registration system was implemented. gy Storage System to the Tarapacá power plant” does not Emergency measures for this type of customer also includ- need to be submitted to the SEIA in order to be implement- ed the temporary installation of a household generator if ed. During 2018, a similar project for the Tal Tal power plant necessary. We have also been experimenting with a pho- is expected to be submitted to the opinion of the authority. tovoltaic pilot project with two customers. A systemat- ic pruning plan to reduce the risk of vegetation affecting distribution lines has also commenced as a consequence of these extreme weather events. Within the context of environmental care, the wood from pruning has been used at a biomass power plant avoiding the 98 tons of CO if it Sustainability 2 were treated conventionally.
Sustainable business model Stakeholders and materiality
Sustainability is considered an essential principle of Enel Chile´s business and is part of the company´s value chain. The Company has focused its sustainability management The 2017 sustainability plan has focused on five pillars that on inclusion and transparent collaboration with its stake- represent the grounds of sustainable development: health holders. Enel Chile is working on criteria and principles to and workplace safety, solid governance, environmental achieve a fair relationship with all stakeholders, to involve sustainability, sustainable supply chain and creation of fi- them from the beginning of the design stage of a project, nancial and economic value. The goals for 2017 are geared assuring equal conditions and equal access to information towards building a strong relationship with the community, required for decision making. This is performed by identi- implementing plans that consider workforce diversity and fying the most relevant stakeholders involved in each op- inclusion, seek operational efficiency and innovation, and eration and evaluating potential areas of impact and joint an energy matrix that includes environmentally sustainable opportunities. technologies. The Enel Group participates in Chile promoting private-pub- The investment in digitalization is critical to the sustain- lic actions to proactively contribute to improve private com- ability of the business, particularly in terms of power plant pany compliance and behavioral standards to strengthen operational efficiency and improving products and services a culture inspired in transparency, honesty, and long-term for our customers. sustainable relationships. Within this context, an agree- ment was formalized with Chiletransparente to strengthen During 2017, our distribution business was affected by and include actions into the Company´s compliance sys- very severe and extraordinary weather conditions that af- tem. fected a large number of customers. The company set up a contingency plan that focused on improving customer Local needs are directly related to the Company´s goals in service tools by expanding service channels, particularly materiality matrices that’s are developed for each territory for the more vulnerable customers such as those whose to carry out the projects that are adequate to reach shared life depends on the electricity supply. A dedicated emer- goals and priorities.
136 Annual Report Enel Chile 2017 The significant presence of the company in the territory focus on the creation of shared value allows collaborating allows having a constant view of the opportunities and with the local industry in defining a common standard to instances available to align solutions and add value to all comply with and aligned to international best practices. stakeholders. These opportunities have fostered the de- velopment of circular economy solutions, i.e., the trans- This system has been conceived as the focal point of the formation of waste, such as, pallets into community eco company´s operations and is therefore a guideline on be- construction material. havior for all company employees.
The business culture of Enel Chile is guided by the Open The Board of Directors approves the programs of the com- Power Vision, committed to the United Nations Sustainable pliance system and, with the support of the Head of Crime Development Objectives, the creation of shared value and Prevention, implements the programs. The Head of Crime complying with the company´s Human Rights Policy. Prevention has the organizational authority and resources to carry out his duties adequately.
Suppliers and contractors’ employees adhere to the provi- Compliance system sions of these programs by means of the General Contract- ing Conditions, a set of clauses that stress the importance and complaint channel and facilitate the control and proper implementation of the Compliance System specified in Law 20,393 applicable to Enel Chile and all its subsidiaries. Enel Chile and each sub- Enel Chile has implemented a Penal Risk Prevention Mod- sidiary has its own specific compliance system. el that builds on the Ethics Code and the Zero Corruption Tolerance policy. Enel Chile opposes to any form of cor- If a potential or real action that opposes the principles of the ruption, direct or indirect, within any process of the value Penal Risk Prevention Model were to take place, any stake- chain, any business location and with any stakeholder. holder may present a complaint through the Complaints Channel managed by the Internal Audit Department. This This model is based on the Global Compliance Program channel has specific management procedures that guar- of the Enel Group, which is comprised of a series of spe- antee confidentiality and no retaliation to the complainant. cific programs that respond to local legislation and the highest international standards, such as, ISO 37,001, the This channel is managed with an external platform that Foreign Corrupt Practices Act FCPA (U.S.A) and the Brib- uses industry standards in terms of confidentiality and is ery Act (United Kingdom). The Group has also incorporated accessible through the internet, telephone or in writing. the definitions of the Global Compact and the Sustainable Development Objectives, both developed by the United Nations.
The Penal Risk Prevention Model covers all the require- Open Power Vision ments of the Crime Prevention Model defined by Law 20,393. Enel Generación Chile has identified the “Open” concept as the focal point of its business, a cornerstone of its strategy The objective of the Compliance System is to contribute and operations. The idea is to Open energy to more people; to Enel’s development of a long-term relationship of trust Open energy to new technologies; offer people new ways with its stakeholders, implementing activities in a respon- to manage energy; add new uses to energy; and add more sible manner and communicating them transparently. The contributors to energy.
Environment and Sustainability 137 1. Quality education Sustainable development (ODS 4): objectives Support educational activities for 400,000 people by 2020, through projects similar to those already underway, such In 2015, the United Nations adopted the new Sustainable as the scholarship program in Latin America. In 2017, the Development Objectives (ODS in its Spanish acronym). Group has already reached the 400,000 goal, and therefore This initiative invites companies to use creativity and inno- the goal has doubled for 2020. In Chile, the goal is to add, vation to face sustainable development challenges, such as by 2020, 150,000 people to the beneficiaries existing in poverty, gender equality, access to clean water and energy, 2016. and climate change among others. 2. Affordable energy At the time, Enel SpA (“Enel”) announced the Group’s commitment to contribute to achieving four of those objec- (ODS 7): tives. Particularly, Enel and its companies worldwide have focused on the following objectives: Commit to promoting affordable, sustainable, and modern energy through the initiative Enabling Electricity that is to benefit 3 million people, mainly in Africa, Asia and Latin America. Enel Chile has proposed to add 70,000 people to the beneficiaries existing in 2016 as the goal for 2020.
138 Annual Report Enel Chile 2017 3. Decent job and econom- ic growth (ODS 8): Human Rights Policy
Promote sustainable, inclusive job opportunities and eco- The Company approved its Human Rights Policy in 2013. nomic growth for 500,000 people. Enel Chile expects to It represents Enel Chile’s commitment and responsibility add 150,000 people to the beneficiaries existing in 2016 towards this critical aspect of social and corporate sustain- by 2020. ability. The document sets out the Company’s commitment to all human rights, particularly those that affect corpora- 4. Action for the climate tions and the activities carried out by all Company employ- (ODS 13): ees in Chile.
Within this framework, the company performed a Human Adopt initiatives to fight climate change in order to be car- Rights diagnosis (Due Diligence) in Chile to identify situa- bon neutral by 2050. tions at risk and prevent them. The results of the diagnosis were disclosed to the stakeholders. This process continues to be constantly monitored and specific plans are imple- mented to minimize related risks.
During 2017, no human rights complaints were received through this platform.
Environment and Sustainability 139 20 Ownership share table
140 Annual Report Enel Chile 2017 San Isidro thermal power plant
Letter from the Chairman 141 Direct and Indirect Ownership Shares
Company Business Ownership Enel Generación Chile Gx 59.98% Pehuenche Gx 55.57% HidroAysén Gx 30.59% Aysén Energía Gx 30.59% Aysén Transmisión Tx 30.59% Enel Distribución Chile Dx 99.09% Transquillota Tx 30.52% GasAtacama Chile Ox 61.03% GNL Chile Ox 19.99% EE Colina Dx 99.09% Luz Andes Dx 99.09% Empresa de Transmisión Chena S.AS Tx 99.09% Cameros Ox 57.50% Gasoducto Atacama Argentina Ox 61.03%
Gx: Generation Dx: Distribution Tx: Transmission / Trading Ox: Gas pipeline, others
142 Annual Report Enel Chile 2017 Organizational Structure
ENEL CHILE S.A.
99.09% 57.50% 59.98%
E E So iedad r ola E E enera i n istribu i n de ameros tda ile S ile S
0.10% 2.6299%
99.90% u 97.3701% as ta ama ndes tda ile S
entrales 0.00005% iidroel tri as 0.0002% 99.97% de ys n S 50.99995% Em resa asodu to 99.9998% 0.03% 99.00% n endesa do El tri a de ta ama rasil tda olina tda r entina S 99% ys n 0.51% 100% 0.10% ransmisi n S asodu to 0.1153% 99.90% Em resa de ta ama E E ransmisi n r entina S r entina S ena S 99% ys n 0.51% Su ursal r entina Ener a S
rans uillota tda 50.00% 33.33% ile S
e uen e S 92.65%
Ownership share table 143 21 Company’s significant events
144 Annual Report Enel Chile 2017 Rapel hydro power plant.
Letter from the Chairman 145 The proposal contained in the Enel Chile Letter consists of Consolidated a corporate reorganization within the Enel Group, through which Enel Chile S.A. would merge with Enel Green Power Latin America Ltda., adding the latter’s non-conventional Significant renewable energy generation assets in Chile to Enel Chile S.A.. The Enel Chile Letter was sent to the Superinten- Events dence of Securities and Insurance (“SVS”) on July 4, 2017 as a Confidential Event and a copy is being made available to all shareholders and the market in general through this filing. As indicated in the Enel Chile Letter, the proposal In accordance with Articles 9 and 10, section 2, of the Se- also implies that the merger is conditioned to the success curities Market Law 18,045 and as established under Gen- of a Public Tender Offer (“PTO”), to be carried out by Enel eral Norm N° 30 of such Superintendence, the following Chile to acquire up to 100% of the common shares issued significant events were informed: by its subsidiary, Enel Generación Chile S.A. owned by mi- nority shareholders. The aforementioned PTO would be a mixed tender offer, that is, partly payable in cash and partly in common shares issued by Enel Chile, and subject to the Enel Chile S.A. condition precedent that after the PTO, Enel Chile must own at least 75% of Enel Generación Chile’s issued capital.
• On April 28, 2017, it was informed as a significant event For the PTO to be possible, Enel Chile must carry out a that the Ordinary Shareholders Meeting held on April capital increase so as to incorporate Enel Generación 26, 2017, agreed to distribute a minimum mandatory Chile’ shareholders who tender their shares. Likewise, dividend (from which the interim dividend paid in Janu- the success of such PTO will be subject to the execution ary 2017 is to be deducted) and an additional dividend of an amendment to Enel Generación Chile’s bylaws, to totalizing Ch$158,780,560,797 equal to Ch$3.23430 eliminate the restrictions imposed by Title XII of Decree per share. 3,500/1980, on stock concentration and other restrictions.
Given that the above-mentioned interim dividend In accordance with the response contained in the Enel SpA has already been paid, the distribution and pay- Letter, a copy of which accompanies this filing, the Compa- ment of final dividend No 3 shall amount to a total ny’s Board of Directors has unanimously resolved to initiate Ch$121,527,144,216, or Ch$2.47546 per share. all work, analysis and steps leading to the execution of the referenced corporate reorganization project, in the terms • On August 25,2017, it was informed as a significant described in the Enel SpA Letter, and in accordance with event that the Board of Directors of Enel Chile S.A. the procedures and requirements of Title XVI under The (hereafter “Enel Chile” or the “Company”), in its ex- Chilean Corporations Law, regarding related party transac- traordinary session held August 25, 2017, analyzed a let- tions. ter sent to the Company by its controlling shareholder, Enel SpA, (the “Enel SpA Letter”) in which Enel SpA A copy of Enel Chile’s original presentation to Enel SpA, favorably viewed the non-binding proposal sent by Enel and a copy of the response letters are attached, as well as Chile to Enel SpA on July 3, 2017 (the “Enel Chile Let- additional communications between both companies, duly ter”). informed to the SVS as Confidential Events.
146 Annual Report Enel Chile 2017 Company’s significant events 147 148 Annual Report Enel Chile 2017 Company’s significant events 149 150 Annual Report Enel Chile 2017 Company’s significant events 151 • On August 30, 2017, it was informed as a significant Enel Chile’s Board of Directors will analyze the re- event that the Board of Directors of Enel Chile S.A. sponse received during the forthcoming session. (hereafter “Enel Chile” or the “Company”), in its ex- traordinary session held August 30, 2017, unanimously • On October 26, 2017, it was informed as a significant agreed to appoint Mr. Oscar Molina H. as independent event that the Board of Directors of Enel Chile S.A. expert and Larraín Vial Servicios Profesionales Limita- (hereafter “Enel Chile” or the “Company”), in its ordi- da as independent appraiser with regard to the corpo- nary session held October 26, 2017, examined the Of- rate reorganization described in the Significant Event ficial Letter N° 27,562 of the Superintendence of Secu- dated August 25, 2017. rities and Insurance and the Official Letter N° 24,211 of the Superintendence of Pensions, through which each Also, the Directors’ Committee, in its extraordinary of these public authorities have issued their respective session held immediately after the aforementioned responses to the inquiries of Enel Chile regarding cer- Board of Directors’ meeting, within its legal authority tain aspects of the corporate reorganization informed unanimously agreed to appoint Econsult Capital as an by the Company to the market through a Significant additional independent appraiser. Event dated August 25, 2017.
Such independent appraisers will evaluate the integ- Copies of the said responses were made available to rity of the operation described in the aforementioned the market through the Significant Events dated Oc- Significant Event. tober 13 and October 24, 2017, respectively. These responses confirmed that Enel Chile may include in • On October 13, 2017, it was informed as a significant the terms and conditions of the Public Tender Offer event that Enel Chile S.A. (hereafter “Enel Chile” or on the shares of its subsidiary Enel Generación Chile the “Company”), has taken note of the response is- S.A, (the “PTO”), a subsequent condition for the suc- sued by the Superintendence of Securities and Insur- cess of the PTO, consisting of all the shareholders ance through its Official Letter No 27,562 dated Octo- that agree to tender their shares, must use part of ber 13, 2017, to the Confidential Consultation filed by the cash consideration that they receive for each Enel the Company on that same date. Generación share tendered to subscribe Enel Chile’s first issue shares, thus the subscription price of those The Board of Directors of Enel Chile will analyze the re- shares will be paid with part of the cash consideration sponse received at a forthcoming session and will duly of the PTO. inform the SVS and the market in general, through a significant event, on the impact of the SVS response The Board of Directors of Enel Chile has unanimously on the design of the operation whose scheme was agreed to review the structure of the reorganization in informed by a significant event dated August 25, 2017. progress, as described through the Significant Event dated August 25, 2017, specifying that the PTO for the • On October 24, 2017, it was informed as a significant shares issued by Enel Generación Chile S.A. shall be event that Enel Chile S.A. (hereafter “Enel Chile” or payable exclusively in cash. However, the PTO will the “Company”), has taken note of the response letter include in its terms and conditions as a subsequent issued by the Superintendence of Pensions through condition that the shareholders that agree to tender the Official Letter N° 24,211 dated October 24, 2017, their shares of Enel Generación Chile S.A. apply part to the Inquiry submitted by Enel Chile on September of the cash consideration they receive to subscribe for 26, 2017 (Gen.Ger letter N°022/2017) supplemented Enel Chile’s first issue shares, thus the subscription by the Inquiry dated October 19, 2017 (Gen.Ger letter price of those shares will be paid with part of the cash N°028). Such Official Letter and the Inquiries referred consideration of the PTO. to have an impact on the transaction, which was in- formed by the Company in the Significant Event dated August 25, 2017.
152 Annual Report Enel Chile 2017 Finally, at the aforementioned session the Board • On November 9, 2017, it was informed as a significant examined the preliminary report issued by the inde- event of Enel Chile S.A. (hereafter “Enel Chile” or the pendent appraiser Mr. Óscar Molina, the preliminary “Company”),that Enel Chile received the Directors’ report issued by the independent evaluator appoint- Committee’s report, issued in accordance with ar- ed by the Board, Larraín Vial Servicios Profesionales ticle 50 bis of the Chilean Corporations Act, Law No Limitada, and the preliminary report issued by the in- 18,046, regarding the corporate reorganization made dependent evaluator appointed by the Directors’ Com- public through significant events dated August 25, mittee, Econsult Capital, which was also previously 2017 and October 26, 2017. examined by the latter corporate body. Copies of the aforementioned preliminary reports will be available to The aforementioned report will be available to the such Superintendence and to the market in general on shareholders on the Company’s website, www. the Company’s web site, www.enelchile.cl. enelchile.cl. Likewise, shareholders of the Company may obtain a copy of these documents at our main • On November 3, 2017, it was informed as a significant office, located at 76 Santa Rosa St. 15 Floor (Inves- event that the Board of Directors of Enel Chile S.A. tor Relations Department), Santiago, Chile, as of this (hereafter “Enel Chile” or the “Company”), in its ex- date. traordinary session held November 3, 2017, examined the following documents regarding the corporate reor- • On November 14, 2017, it was informed as a signifi- ganization informed to the market through the Compa- cant event that the Board of Directors of Enel Chile ny´s Significant Events dated August 25 and October S.A. (hereafter “Enel Chile” or the “Company”), in 26, 2017: its extraordinary session held November 14, 2017, re- ceived and analyzed the individual statements issued a) Final report issued by the independent apprais- by Messrs. Herman Chadwick Piñera, Chairman of the er appointed by the Board, Larraín Vial Servicios Board of Directors, Giulio Fazio, Vice-Chairman of the Profesionales Limitada, within the context of the Board of Directors and Directors Salvatore Bernabei, Corporate Reorganization process; Vicenzo Ranieri, Fernán Gazmuri Plaza, Pablo Cabrera Gaete and Gerardo Jofré Miranda regarding the cor- b) Final report issued by the independent appraiser porate reorganization as a related party transaction, appointed by the Directors’ Committee, Econsult in accordance to the rules of Title XVI of the Chilean Capital, within the context of the Corporate Reor- Corporations Act. ganization process; The Board of Directors unanimously issued a collec- c) Final report issued by the independent expert tive declaration in favor of the operation, in accordance appointed by the Board of Directors, Mr. Oscar with the corporate bylaws and the United States of Molina, to report on the value of the merging America legislation. companies, Enel Chile and Enel Green Power Lat- in America and the merger exchange ratio of the All the aforementioned documents will become public aforementioned companies and corresponding and available, as of this date, on the Company web- pro-forma balance sheet. site: www.enelchile.cl. Copy of the above-mentioned documents are also available for the Shareholders at The aforementioned reports will be available as of our main office located at 76 Santa Rosa St. 15 floor this date to shareholders on the Company’s website, (Investor Relations Department)] in Santiago, Chile, as www.enelchile.cl. Likewise, a copy of these docu- of this date. ments may be obtained at our main office, located 76 Santa Rosa St., 15 Floor (Investor Relations Depart- ment), Santiago, Chile.
Company’s significant events 153 Likewise, the Board of Directors unanimously agreed cess of the Enel Generación PTO, mentioned in to summon an Extraordinary Shareholders’ Meeting (ii); and (iv) as a success condition for the Enel to take place at Enel Chile’s Stadium, located at 858 Generación PTO, that Enel Generación agrees to Carlos Medina St., Independencia, Santiago, on De- amend its bylaws so as to eliminate limitations cember 20, 2017 at 10:00 a.m. and restrictions established by Title XII of Decree Law 3,500/1980 in particular, but not limited to, The following topics will be submitted to the decision the shareholding concentration limit which states of the Extraordinary Shareholders Meeting: that no shareholder shall hold more than 65% of the capital with voting rights of Enel Generación 1. Related Party Transaction. Approve a corporate (the “Amendment to Enel Generación Bylaws”), reorganization (the “Reorganization”) as a relat- which is conditioned to the success of the Enel ed party transaction, in accordance to the rules Generación PTO, aforementioned in (ii). The Re- of Title XVI of the Chilean Corporations Act, Law organization includes all the above-mentioned N°18,046. Such Reorganization involves the fol- stages, which are bundled and tied together, lowing: (i) the merger by incorporation of Enel meaning that the Reorganization shall be consid- Green Power Latin America S.A. (“Enel Green ered successfully approved, only if all of them are Power”) by Enel Chile (the “Merger”), which will approved. require a capital increase in Enel Chile in order to pay the Enel Green Power’ shareholders the For the approval of the Related Party Transaction, shares to which they are entitled under the ex- the following information has been made avail- change rate agreed for the Merger, and which is able to the shareholders: (i) the document “Gen- conditioned to the success of Enel Generación´s eral Basis of the Reorganization”, which includes PTO, mentioned below; (ii) a Public Tender Of- a detailed description of the grounds, terms and fer to be carried out by Enel Chile to acquire up conditions of the Reorganization, and that will to 100% of the shares and American Deposi- be subject of the approval by the shareholders tary Shares (“ADS”) of Enel Generación Chile as part of this related party transaction; (ii) the S.A. (“Enel Generación”) owned by the minority reports from the independent appraisers desig- shareholders of the latter (The “Enel Generación nated by the Board of Directors of Enel Chile and PTO”) and that will have, among other objective Enel Generación and their respective Directors’ requirements, the condition that the Enel Gener- Committee; (iii) the reports from the independent ación shareholders that accept Enel Generación experts designated as a result of the Merger be- PTO for such a number of shares that allow Enel tween Enel Chile and Enel Green Power; (iv) the Chile to achieve an ownership of more than 75% audited statement of financial position of Enel of the shares issued by Enel Generación, such ac- Chile and Enel Green Power, as entities that par- ceptances must contemplate the commitment of ticipate in the Merger; (v) Enel Chile Directors’ the shareholders of Enel Generación that agree to Committee Report; and (vi) Individual opinions is- sell their shares and ADS, to subscribe shares and sued by Messrs. Herman Chadwick Piñera, Chair- ADS issued by Enel Chile in the capital increase man of the Board, Giulio Fazio, Vice Chairman of mentioned in (iii). These shares and ADS will be the Board and by Directors Salvatore Bernabei, paid by the shareholders of Enel Generación with Vincenzo Ranieri, Fernan Gazmuri Plaza, Pablo part of the price of their respective shares that Cabrera Gaete and Gerardo Jofré Miranda. Share- they agree to sell in the Enel Generación PTO; holders may obtain, as of this date, a complete (iii) a capital increase of Enel Chile to reach suf- copy of all the information previously referred to ficient number of shares and ADS to deliver to at our main office located at 76 Santa Rosa St. the shareholders of Enel Generación that decide 15 floor (Investor Relations Department) in San- to sell their shares in the Enel Generación PTO, tiago, Chile and on the Company website: www. which will be paid in cash (the “Enel Chile Capital enelchile.cl. Increase”) and which is conditioned to the suc-
154 Annual Report Enel Chile 2017 2. Merger. Approve, in accordance to the rules of 6. Dully empower Enel Chile’s Board of Directors to title IX of the Chilean Corporations Act and title register the new shares in the Superintendence IX of the Chilean Corporations Regulations: (i) the of Securities and Insurance Register and the new proposed Merger by means of which Enel Chile ADSs before the Securities and Exchange Com- will absorb Enel Green Power, which will be dis- mission and other faculties required for the Re- solved without liquidation. Enel Chile will succeed organization. Confer broad powers to Enel Chile’s to all rights and obligations; and (ii) the exchange Board of Directors to perform all actions required ratio for the Merger, the audited Financial State- to carry out the Reorganization including request- ments of Enel Chile and Enel Green Power, as ing the registration of the shares resulting from entities to be merged; a Capital Increase in Enel the Capital Increase in the Superintendence of Chile to assign and distribute the issued shares Securities and Insurance Register (or its succes- to the Enel Green Power shareholders, in order to sor the Financial Market Commission), as well apply the exchange ratio for the Merger. as the registration of the American Depository Shares in the Securities and Exchange Commis- 3. Enel Chile Capital Increase. Increase Enel Chile’s sion of the United States of America, perform capital by Ch$ 1,891,727,278,668, through the is- the Enel Generación PTO in accordance with the suance of 23,069,844.,62 new shares, all of the terms and conditions approved by the Extraordi- same series and without par value, at the price nary Shareholder Meeting, carry out the actions and other conditions to be determined by the Ex- required to consummate the Merger and, in gen- traordinary Shareholders Meeting. eral, to develop all other pertinent actions related to the Reorganization, adopting the other agree- 4. Enel Chile´s Extraordinary Shareholders Meeting ments that are convenient to legalize and make vote on the Amendment to the Bylaws of Enel effective the above-mentioned Enel Chile bylaw Generación Chile. Duly authorize Enel Chile’s amendments. Chairman of the Board of Directors, Mr. Herman Chadwick, or whoever he appoints, to attend the 7. Information regarding Other Related Party Trans- corresponding extraordinary shareholders’ meet- actions. Inform shareholders on the agreements ings of Enel Generación and vote in favor of the associated to Other Related Party Transactions re- Amendment to Enel Generación Bylaws. ferred to by Title XVI of the Chilean Corporations Act, Law N°18,046, other than the Reorganiza- 5. Amendment to Enel Chile Bylaws. (a) Amend Enel tion, that have adopted since the last Enel Chile Chile’s bylaws to include the agreements regard- shareholders’ meeting and until the date of the ing the Merger, the Capital Increase of Enel Chile session summoned and identifying the Board and other agreements adopted by this Extraordi- members that approved them. nary Shareholders’ Meeting, and replace Article Five and First Transitory Article for this purpose. • On November 17, 2017, it was informed as a significant (b) Expand Enel Chile´s corporate purpose, in or- event that Enel Chile S.A. received the Directors’ Com- der to include information and communications mittee’s Report on November 17, 2017, in accordance technology activities, and modify for this purpose, with Article 50 bis of the Chilean Corporations Act, re- Article Fourt of the bylaws. (c) Modify Articles Fif- garding the corporate reorganization, which was made teen and Sixteen, in order to eliminate the Vice public through the significant events dated August 25 Chairman position from the Board of Directors and August 26 of 2017. and any references to such position. (d) Eliminate the Second Transitory Article and the Tenth Transi- • On November 17, 2017, it was informed as a signifi- tory Article because they are no longer in force, cant event that Enel Chile S.A. (hereafter “Enel Chile” and (e) Provide an amended text of the bylaws of or the “Company”), received a letter from its con- Enel Chile S.A. trolling shareholder, Enel SpA (the “ Enel SpA Letter”)
Company’s significant events 155 through which the company confirms what was stated the holding company of the Enel Group, to develop in the Collective Declaration of the Board of Directors and manage the nonconventional renewable energies of Enel Chile S.A regarding the Corporate Reorgani- in Chile exclusively through subsidiaries of Enel Chile zation Transaction of the Company (Elqui Project) dis- S.A. closed through Significant Event dated November 14, 2017 and made available to shareholders and the pub- • On December 20, 2017, it was informed as a signifi- lic through its publication on the Enel Chile´s website cant event that Enel Chile S.A. (hereafter “Enel Chile” www.enelchile.cl. or the “Company”), in its Extraordinary Shareholders Meeting held today, complying with the quorum re- A copy of the Enel SpA Letter is attached to this Sig- quirements established by law and the Company by- nificant Event and confirms the Collective Declaration, laws, has approved the following: establishing the explicit commitment of Enel SpA, as
156 Annual Report Enel Chile 2017 (a) Carry out the Corporate Reorganization (the established as a condition precedent to the suc- “Reorganization”) as a Related Party Transaction cess of the Enel Generación PTO mentioned in in accordance with the provisions of Title XVI of numeral (ii). the Chilean Corporations Law No 18,046, which involves the following stages: (i) the merger by (b) In accordance with Title IX of the Chilean Corpo- incorporation of Enel Green Power Latin America rations Law and Title IX of Corporations Regula- S.A (“Enel Green Power”) by Enel Chile S.A. (here- tions, carry out: (i) the proposed Merger in which inafter the “Merger”), that is subject to the suc- Enel Chile will absorb Enel Green Power taking cess of the Enel Generación PTO as a condition on its rights and responsibilities. Enel Green precedent as mentioned in the following numeral, Power would dissolve without liquidation; and and which will require a capital increase in Enel (ii) approve the exchange ratio of the Merger, the Chile to pay Enel Green Power shareholders for audited financial statements of each merging their shares, according to the Merger’s exchange company, Enel Chile and Enel Green Power, a ratio; (ii) a Public Tender Offer by Enel Chile to pur- capital increase in Enel Chile with the purpose to chase up to 100% of the shares and the American distribute its shares to Enel Green Power share- Depository Shares (“ADS”) issued by Enel Gen- holders according to the Merger’s exchange ratio. eración Chile S.A. (“Enel Generación”) held by the minority shareholders of the latter (the “Enel (c) A Ch$ 1,891,727,278,668 capital increase in Enel Generación PTO”). This tender offer will be sub- Chile through the issuance of 23,069,844,862 ject to a series of conditions, including that Enel new shares, belonging to one same series, with- Chile reach an ownership share of more than 75% out par value, at the price and other terms to be of Enel Generación’s common stock as a result determined by the Extraordinary Shareholders of the Enel Generación PTO and that the share- Meeting. holders that accept to sell their shares in the PTO also accept to subscribe Enel Chile shares and (d) Empower Mr. Herman Chadwick Piñera, the ADS, as the case may be, issued as part of the Chairman of Enel Chile’s Board of Directors, or capital increase process as mentioned in numeral whom he may have empowered to represent (iii) hereafter. Such shares and ADS will be paid him, to attend the Enel Generación Extraordinary for by Enel Generación shareholders with part of Shareholders Meetings and vote in favor of the the price they receive for selling their shares in Amendment to Enel Generación Bylaws. the Enel Generación PTO; (iii) a capital increase in Enel Chile that is subject to the success of the (e) Amend Enel Chile bylaws: (a) substitute Transito- Enel Generación PTO, as mentioned in numeral ry Article One and Five of the Company Bylaws (ii) above and that is needed to have sufficient in order to capture the agreements regarding the shares and ADS to deliver to the shareholders of Merger, the Enel Chile Capital Increase, and other Enel Generación that accept to sell their shares agreements adopted by the Shareholders Meet- in the Enel Generación PTO, which is payable in ing, (b) replace the Fourth Article of bylaws to add cash (the “Enel Chile Capital Increase”); and (iv) information and communications technology to an amendment to the Enel Generación bylaws to Enel Chile’s purpose, (c ) modify Article Fifteen eliminate all limitations and restrictions imposed and Sixteen to eliminate the Board of Directors’ by the provisions of Title XII of Decree Law No Vice-chairperson position and all references to 3,500/1980, particularly that no shareholder may such position, (d) eliminate Transitory Article concentrate more than 65% of Enel Generación’s Two and Transitory Article Ten that are no longer equity with voting rights (the “Amendment to applicable, (e) deliver a revised version of Enel Enel Generación Bylaws”). This amendment is Chile S.A. Bylaws.
Company’s significant events 157 (f) Empower Enel Chile’s Board of Directors to per- Finally, I inform that, notwithstanding what ac- form all actions necessary to carry out the Reor- cording to the law and applicable regulation will ganization, including requesting the registration be informed opportunely, the shareholders that of the shares issued as part of the capital increase disagree with the Merger have the right to with- in the Register of the Superintendence of Securi- draw as stated by current legislation. ties and Insurance (or its successor, the Financial Market Commission) as well as the registration • On December 20, 2017, it was informed as a signifi- of American Depository Shares in the United cant event that the Board of Directors of Enel Chile States Securities and Exchange Commission, S.A. (hereafter “Enel Chile” or the “Company”), in its carry out the Enel Generación PTO according to session held today, unanimously agreed to distribute the terms and conditions approved by the Share- an interim dividend of Ch$ 0.75642 per share on Jan- holders’ Meeting, perform activities necessary to uary 26, 2018, attributable to the 2017 fiscal period, complete the Merger and all other activities re- corresponding to 15% of Enel Chile’s net income as of quired to complete the Reorganization, adopting September 30, 2017, based on the Company’s Finan- all agreements required to legalize and put Enel cial Statements at such date. Chile Bylaw amendments previously mentioned into effect. • As set forth in Superintendence Circular Letter No 660 of 1986, we enclose herein Form No 1 that provides It is hereby noted that the Extraordinary Share- information regarding the interim dividend. holders’ Meeting of Enel Generación Chile S.A. held today has agreed to approve the Amend- ment to Enel Generación Bylaws required to carry out the Operation, and the Extraordinary Shareholders’ Meeting of Enel Green Power Latin America S.A. held today has agreed to approve the Merger by absorption of Enel Green Power Latin America S.A by Enel Chile S.A.
158 Annual Report Enel Chile 2017 Company’s significant events 159 22 Identification of subsidiaries and associate companies
160 Annual Report Enel Chile 2017 Canela I wind farm
Letter from the Chairman 161 AGRÍCOLA DE CAMEROS ENEL DISTRIBUCIÓN ENEL GENERACIÓN CHILE S.A. CHILE Name Sociedad Agrícola de Cameros Limitada Name Name Enel Distribución Chile S.A. Enel Generación Chile S.A. Type of Company Limited Liability Company Type of Company Type of Company Publicly held Limited Liability Stock Publicly held Limited Liability Stock Taxpayer ID Corporation Corporation 77.047.280-6 Taxpayer ID Taxpayer ID Address 96,800,570-7 91,081,000-6 Camino Polpaico a Til-Til, S/N Til-Til, Chile Address Address 76 Santa Rosa St., 8th floor 76 Santa Rosa St. Telephone Santiago, Chile Santiago, Chile (56 2) 2378 4700 Telephone Telephone Subscribed and Paid Capital (ThCh$) (56 2) 2675 2000 (56 2) 2630 9000 5,738,046 Subscribed and Paid Capital (ThCh$) Subscribed and Paid Capital (ThCh$) Corporate Purpose 230,137,980 552,777,321 The purpose of the company is the exploitation of agricultural land. Corporate Purpose Corporate Purpose Distribution and sale of electricity, either Generation and supply of electricity; Core Business hydraulic, thermal or any other source of provision of engineering and consulting Real estate and agriculture electricity in Chile or abroad, as well as the services; and construction and exploitation of distribution, transportation, and sale of fuels infrastructure projects in Chile and abroad. Administration of any kind, and supplying this energy or fuel Bylaws include a Board of Directors: directly or through other companies to as Core Business Directors many customers as possible. Electricity Generation Francisco Silva Bafalluy Hugo Ayala Espinoza Core Business Directorio Manuel Larraín García Electricity distribution. Giuseppe Conti (Chairman) María Cristina Auad Faccuse Francesco Giorgianni Cristián Guadi Imbarack Dagach Board of Directors Frabrizio Barderi Alternate Directors Gianluca Caccialupi (Presidente) Julio Pellegrini Vial Hans Knoop Frick Rodolfo Avogadro Di Vigliano Mauro Di Carlo Solange Zincke Cavalieri Monica Hodor Umberto Magrini Ingrid Morales Ávila Iris Boeninger von Kretschmann Luca Noviello Jorge Geldres Reyes Hernán Felipe Errázuriz Correa. Enrique Cibié Bluth Andrés Garib Auad Jorge Atton Palma Senior Executives Senior Executives Hugo Ayala Espinoza Andreas Gebhardt Strobel Principales ejecutivos Chief Executive Officer Chief Executive Officer Valter Moro Simone Tripepi Chief Executive Officer Business Relations Andrés González CerTaxpayer ID i Raúl Arteaga Errázuriz Service contract provided by Enel Chile: Daniel Gómez Sagner Luis Ignacio Quiñones Sotomayor Provision of internal audit and compliance Horacio Aránguiz Pinto Bernardo Canales Fuenzalida control services. Price: expressed in UF per Victor Tavera Humberto Espejo Paluz hour that Enel Chile’s staff assigns to the Yanett Henríquez Zamora Claudio Helfmann Soto contracted services. Rodrigo Vargas Gómez Luis Vergara Adamides Michele Siciliano Business Relations Claudio Órdenes Tirado (I) Service contract provided by Enel Chile: Juan Alejandro Candia Comprehensive procurement service; Materials Carlo Carvallo Artigas purchasing; Contracting of works, services and consultancies, Reception. Storage and Business Relations supply of recurrent and non-recurrent materials, (i)Service contract provided by Enel Chile: sales agent. Price: Mark-up over average price Procurement services; Materials Purchasing; of consumed materials. (ii) Service contract Contracting of works, services and provided by Enel Chile: Financial management, consultancies. Price: Directly proportional to management and corporative services. Price: costs associated to staff and to operating monthly amount fixed in UF. (iii) Trade accounts and maintenance expenses. Every year, the receivable (iv) Administration services provided amount for next annual period is determined, by Enel Chile. Price: monthly amount fixed in introducing the proper improvements and UF. efficiencies. (ii) Service contract provided by Enel Chile: Money desk and treasury services. Price: Monthly amount expressed in UF. (iii) Service contract provided by Enel Chile:
162 Annual Report Enel Chile 2017 Accounting services. Price: Monthly amount Purchase, divest, parcel, divide, lot division, expressed in UF. (iv) Service contract provided commercialize and exploit at any title of AYSÉN TRANSMISIÓN * by Enel Chile: Internal audit and compliance all kinds of real estate, on its own account control services. Price: UF amount per hour or for third parties, invest the corporate that Enel Chile staff dedicates to contracted funds in all kinds of property, immovable or Name services. (v) Trade accounts receivable (vi) movable, corporeal or incorporeal and rights Aysén Transmisión S.A. Administration services provided by Enel in societies, manage them and receive its Chile. proceeds and returns. On September 1, Type of Company 2017, Enel Dsitribución Chile S.A. Privately held corporation, registered in the Securities Register of the SVS. * On September 1, 2017, Enel Dsitribución SERVICIOS Chile S.A. sold its economic interest in To Taxpayer ID INFORMÁTICOS E its only partner Enel Chile S.A. Therefore 76,041,891-9 Servicios Informáticos e Inmobiliarios Ltda. INMOBILIARIOS LTDA. * dissolved without the need of a liquidation Address process and its assets were entirely 383 Miraflores, office 1302 Santiago, Chile. absorbed by Enel Chile S.A. Name Corporate Purpose Servicios Informáticos e Inmobiliarios Develop and alternatively or additionally Limitada manage electricity transmission systems AYSÉN ENERGÍA * required in the hydroelectric generation Type of Company project that HydroAysén plans to build in the Limited Liability Company Aysén Region. In order to fulfill its purpose. Name its business activities include the following: Taxpayer ID Aysén Energía S.A. a) the design, development, construction, 76.107.186-6 production, ownership, maintenance and Type of Company operation of electricity transmission systems, Address Privately held corporation b) electricity transportation, and c) providing 76 Santa Rosa St. 9th floor services related to its Corporate Purpose. Santiago, Chile Taxpayer ID 76,091,595-5 *During the Extraordinary Shareholders’ Telephone Meeting of Aysén Transmissión held (562) 2353 4606 Address December 22, 2017, the dissolution of the 383 Miraflores St. office 1302 company was agreed. Subscribed and Paid Capital (ThCh$) Santiago, Chile. 61,948,674 Telephone Corporate Purpose (562) 2713 5000 CHENA The purpose will be to carry out on its own or through third parties, the following Corporate Purpose Name activities: 1) Consultancy services provision Comply with the first article of Resolution 30 Empresa de Transmisión Chena S.A in matters related to information technology dated May 26, 2009, issued by the antitrust and computing, telecommunications government agency, Tribunal de la Libre Type of Company and data transmission; management, Competencia, to fulfill the commitment made Privately held corporation registered in the consultancy, advisory and administration by HidroAysén S.A. with the community of securities register of the SVS. of the company’s own or third party the XI Region of Aysén, within the framework contracts that are related to said matters; of the Aysén Hydroelectric Project to provide Taxpayer ID establishing, managing and exploiting data the region with a lower cost electricity supply 76,722,488-5 base centers; creation, development, design, when compared to the current value, through management, operation, commercialization, the development, funding, ownership and Address purchase, sale, import, and export of all operation of projects that generate and 76 Santa Rosa St. 8th floor kinds of software; contract management transmit electricity in that region. In order Santiago, Chile and administration and project development to comply with the above, the company and execution. 2) Acquire and sell all kinds may develop the following activities, among Telephone of corporeal or incorporeal property related others: a) produce, supply and commercialize (56 2) 2353 4698 to its object; provide services and obtain electricity using any source of generation; b) representations to accomplish its purpose; electricity transportation; c) provide services Subscribed and Paid Capital (ThCh$) organize, constitute, participate and be related to its Corporate Purpose; and d) to 250,429 part of all kinds of companies, associations request, obtain or acquire and benefit from or joint accounts; make all types of cash, the concessions, rights and permits that are Corporate Purpose service and kind contributions, and to sign required. Electricity transmission service or consultancy contracts, either in Chile or abroad. 3) Administration and *During the Extraordinary Shareholders’ Core Business exploitation of own or third party businesses Meeting of Aysén Energía held December Electricity transmission and, in general, the development of any 22, 2017, the dissolution of the company was activity connected or supplementary to the agreed. Board of Directors aforementioned purposes, and any other Andreas Gebhardt Strobel partners deem mutually convenient. 4) Daniel Gómez Sagner Francisco Messen Rebolledo
Identification of Subsidiaries and Associate Companies 163 Senior Executives fuels; c) sell and provide engineering services; Miguel Eduardo Readi Pizarro EÓLICA CANELA * d) acquire, purchase, transfer, lease, charge and Chief Executive Officer develop, in any form, the concessions referred to in the Electricity Law, maritime concessions Business Relations Name and water rights of any nature; e) transport (i) Network planning service contract natural gas, by itself or jointly with third parties provided by Enel Distribución Chile Type of Company in Chile or abroad, including the construction, : supervision and remote operation, Privately held corporation location, and operation of gas pipelines and supervision, and coordination of connections other activities directly or indirectly related to and disconnections, planning and control Taxpayer ID such operations; f) catchment, extraction, of maintenance program, local operations 76,003,204-2 treatment, desalination, transportation, , maintenance and emergency service, distribution, commercialization, delivery and network planning, operations of facilities. Address supply of seawater, in all its forms, including Price: monthly amount fixed in UF. (ii) legal Santa Rosa 76, Santiago, Chile natural, drinking, desalinized or treated in any counsel service contract provided by Enel way, either by itself or through a third party; Distribución Chile: topo management, legal Corporate Purpose g) invest in all types of assets, tangible or services, and secretary to the board. Price: Promote and develop renewable energy intangible, movable or fixed; h) organize and Monthy amount fixed in Chilean pesos. projects, mainly wind-powered energy create all kinds of companies whose objectives projects, and identify and develop Clean are related or linked to the energy industry in Development Mechanism (MDL in its any form, or that use electricity as the main Spanish acronym) projects, and act as a input, or that relate to any of the aforementioned ELECTROGAS * depositary and trader of Emission Reduction activities. To achieve its purpose, the company Certificates resulting from such projects. may carry out all acts and enter into all contracts It may also generate, transport, distribute, that contribute to its business activities, Name supply and commercialize electricity, and including the purchase, sale, acquisition or Electrogas S.A. acquire and benefit from the corresponding disposal, on any account, of all kinds of assets, concessions. tangible or intangible, movable or fixed and may Type of Company enter into whatever kind of existing companies Privately held corporation Core Business or join in their formation. Electricity Generation Taxpayer ID Core Business 96,806,130-5 Capital Suscrito y Pagado Electricity generation and gas transportation (M$) 12,284,743 Corporate Purpose Subscribed and Paid Capital (ThCh$) Provide transportation services for natural gas *During the Extraordinary Meeting held on 482,511,131 and other fuels, on behalf of the Company and November 30, 2017, shareholders agreed to third parties, for which it can build, operate dissolve the company. Directors and maintain gas pipelines, oil pipelines, Raúl Arteaga Errázuriz, Presidente multipurpose pipelines and complementary Sergio Ávila Arancibia facilities. GASATACAMA CHILE Pablo Arnés Poggi Humberto Espejo Paluz * In December, 2016, Enel Generación Chile S.A. sold its entire economic interest in Name Senior Executives Electrogas to a third party (Aerio Chile SpA). The GasAtacama Chile S.A. Valter Moro shares of Electrogas held by Enel Generación Chief Executive Officer Chile were transferred on February 7, 2017 and Type of Company therefore ceased to be a subsidiary of Enel Chile Privately held corporation Business Relations con Enel Chile S.A. S.A. Communications, human resource Taxpayer ID management, and capital management 78,932,860-9 service contract provided by Enel Chile S.A. Price: monthly amount expressed in UF. Address 76 Santa Rosa St. Santiago, Chile
Corporate Purpose The company has the following purpose: a) develop the generation, transmission, purchase, distribution and commercialization of electricity or energy of any other source; b) purchase, extract, operate, process, distribute, commercialize and sell solid, liquid and gas
164 Annual Report Enel Chile 2017 GASODUCTO ATACA- GNL CHILE HIDROAYSÉN * MA ARGENTINA Name Name GNL Chile S.A. Centrales Hidroeléctricas de Aysén S.A. Name Gasoducto Atacama Argentina S.A. Type of Company Type of Company Privately held corporation Privately held corporation, incorporated in Type of Company Santiago, Chile and registered in the Securities Privately held corporation Taxpayer ID Register of the SVS. 76,418,940-K Taxpayer ID Taxpayer ID 78,952,420-3 Address 76,652,400-1. 532 Rosario Norte St. office 1303 Address: Las Condes, Santiago Corporate Purpose 76 Santa Rosa St. The development, funding, ownership and Santiago, Chile Telephone exploitation of a hydroelectric project in (562) 2892 8000 the XI Region of Aysén with an estimated Corporate Purpose capacity of 2,750 MW through five The transportation of natural gas, either Subscribed and Paid Capital (ThCh$) hydroelectric power plants, collectively by itself, through or jointly with a third 1,860,332 named “Aysén Project”. To fulfill its purpose, party, in the Chile or abroad, including the the company may engage in the following construction, location and operation of Corporate Purpose activities: a) generation and transportation of gas pipelines and other operations directly The purpose of the company is: a) contract electricity; b) supply and commercialization or indirectly related to this objective. The the services of GNL Quintero S.A., a liquefied of electricity to its shareholders; c) manage, company has incorporated an agency in natural gas (“LNG”) regasification company, operate and maintain hydraulic infrastructure, Argentina under the name of Gasoducto and utilize its entire natural gas storage, electricity systems and hydroelectric power Cuenca Noroeste Limitada Sucursal processing, regasification, and delivery generating plants. Argentina whose purpose is the construction capacity and LNG available at its regasification of a gas pipeline between Cornejo, a town in terminal, including its expansions, if any, and *During Extraordinary Meeting held on the province of Salta and the Argentina-Chile any other matter stipulated in the contracts December 7, 2017, the shareholders agreed border in the vicinity of Paso de Jama in the company might sign for the use of the to dissolve the company. Chile’s Second Region. regasification terminal; b) import LNG from suppliers, as determined by LNG purchase Core Business contracts; c) sell and deliver natural gas and Gas transportation LNG, as determined by the natural gas and PEHUENCHE LNG sales contracts signed by the company Subscribed and Paid Capital (ThCh$) with its customers; d) manage and coordinate 126,309,044 Name the schedules and nominations of LNG Empresa Eléctrica Pehuenche S.A. shipments, as well as the delivery of natural Directors gas and LNG among various customers; Raúl Arteaga Errazuriz Type of Company and e) fulfill all its obligations and demand Pablo Arnés Poggi Publicly held Limited Liability Stock the enforcement of all its rights under the Alex Díaz Sanzana Corporation, and registered in the Securities previously identified contracts, coordinate Register of the SVS under the number 293 all operations under these contracts and, in Senior Executives general, carry out any type of act or enter Valter Moro Taxpayer ID into any contract that might be necessary, Chief Executive Officer 96,504,980-0 useful or convenient in order to accomplish its purpose. Business Relations Address The company has no business relationships 76 Santa Rosa St. Core Business with Enel Chile. Santiago, Chile Import and commercialization of natural gas
Corporate Purpose Directors Generate, transport, distribute and supply Juan Oliva Vásquez electricity, and acquire and benefit from the Yasna Ross Romero respective concessions. Luis Arancibia Yametti
Core Business Senior Executives Electricity generation Alejandro Palma Rioseco Chief Executive Officer Subscribed and Paid Capital (ThCh$) 175,774,920 Business Relations The company has no business relationships with Enel Chile.
Identification of Subsidiaries and Associate Companies 165 Board of Directors Raúl Arteaga Errázuriz LUZ ANDES EMPRESA ELÉCTRICA Ignacio Quiñones Sotomayor DE COLINA Claudio Helfmann Soto Fernando Vallejos Reyes Name Luz Andes Limitada Juan Candia Narvaez Name Empresa Eléctrica de Colina Ltda. Senior Executives Type of Company Limited Liability Company Carlo Carvallo Artigas Type of Company Chief Executive Officer Limited Liability Company Taxpayer ID 96,800,460-3 Business Relations Taxpayer ID Communications, human resource 96,783,910-8 management, and capital management Address 76 Santa Rosa St. service contract provided by Enel Chile S.A. Address Santiago, Chile Price: monthly amount expressed in UF. 31 Chacabuco St., Colina Santiago, Chile Telephone (56 2) 2634 6310 Telephone TRANSQUILLOTA (56 2) 2844 4280 Subscribed and Paid Capital (ThCh$) 1,224 Subscribed and Paid Capital (ThCh$) Name 82,222 Transmisora Eléctrica de Quillota Ltda. Corporate Purpose Distribution and sale of electricity, and sale Corporate Purpose Type of Company of household, sports, entertainment and Distribution and sale of electricity, and sale Limited liability Company computer appliances. of household, sports, entertainment and computer appliances. Taxpayer ID Core Business 77,017,930-0 Electricity distribution Core Business Electricity distribution Address Joint Administration Route 60, km 25, Lo Venecia Claudio Inzunza Diaz Joint Administration Quillota, V Region of Valparaíso, Chile Rodrigo Vicente Arévalo Cid. Francisco Javier Evans Miranda Rodrigo Vicente Arévalo Cid. Corporate Purpose Senior Executives Transportation, distribution, and supply of Claudio Inzunza Díaz Senior Executives electricity, either by itself or through a third Chief Executive Officer Francisco Javier Evans Miranda party. Chief Executive Officer Business Relations Core Business (i) Service contract provided by Enel Chile: Business Relations Electricity transmission Comprehensive procurement services, (i) Service contract provided by Enel Chile: materials purchasing, contracting works, Comprehensive procurement services, Subscribed and Paid Capital (ThCh$) services and consultancies, reception, materials purchasing, contracting works, 4,404,446 storage and supply of recurrent and non- services and consultancies, reception, recurrent materials, sales agent. Price: storage and supply of recurrent and non- Representatives Mark-up over average price of consumed recurrent materials, sales agent. Price: Santiago Bradford Vicuña materials. (ii) Service contract provided by Mark-up over average price of consumed Goran Nekik Enel Chile: Internal audit and compliance materials. (ii) Service contract provided by Gastón Zepeda Carrasco control services. Price: UF amount per hour Enel Chile: Internal audit and compliance Sergio Ávila Arancibia that Enel Chile’ staff dedicates to contracted control services. Price: UF amount per hour Pedro de la Sotta Sánchez services. (iii) Administration service contract that Enel Chile’ staff dedicates to contracted provided by Enel Chile. services. (iii) Administration service contract Business Relations provided by Enel Chile. Price: Monthly The company has no commercial relations amount expressed in UF. with Enel Chile.
166 Annual Report Enel Chile 2017 Identification of Subsidiaries and Associate Companies 167 23 Statement of Responsibility
168 Annual Report Enel Chile 2017 Letter from the Chairman 169 Pangue hydro power plant
170 Annual Report Enel Chile 2017 Statement of Responsibility
The Directors of Enel Chile S.A. and its Chief Executive Officer, signatories of this statement, are responsible under oath of the veracity of the information provided in this Annual Report, in compliance with the General Norm N°30, issued by the Superintendence of Securities and Insurance.
CHAIRMAN DIRECTOR Herman Chadwick Piñera Giulio Fazio Taxpayer Id: 4,975,992-4 Passport: YA4656507
DIRECTOR DIRECTOR Salvatore Bernabei Pablo Cabrera Gaete Taxpayer Id: 24,220,743-2 Taxpayer Id: 4,774,797-K
DIRECTOR DIRECTOR Daniele Caprini Gerardo Jofré Miranda Passport: YA9188092 Taxpayer Id: 5,672,444-3
DIRECTOR CHIEF EXECUTIVE OFFICER Fernán Gazmuri Plaza Nicola Cotugno Taxpayer Id : 4,461,192-9 Taxpayer Id: 25,476,277-6
Statement of Responsibility 171